Financiers Put Social Teeth into Money Decisions at Hearing on New Global Finance Framework

Governments at the United Nations hammering out an agreement on financing a new global development push are hearing from decision makers with a broad understanding of “return on investment”.

With the growth of the responsible investment and corporate sustainability movements, investors and companies are increasingly aware of the importance of embedding environmental, social and governance (ESG) criteria in their investment decisions and reporting on ESG practices.  Today, as part of the Business Sector Hearings for the Third International Financing for Development Conference at the United Nations, companies and investors exemplified growing private sector recognition of the value of taking these considerations into account.

The panelists — Renosi Mokate, Chair of the South Africa Government Employees Pension Fund, the largest in Africa and among the world’s top 10; Managing Director Claudia Kruse of the Dutch Pension Plan asset management company, also one of the world’s largest; Nigerian Stock Exchange Corporate Governance Chief Bola Adeeko; and Filippo Bettini, Head of Sustainability and Risk Management at the Pirelli company — all indicated that “paying forward” on beneficial investment criteria will also pay back investors in safer, more sustained returns.

ESG considerations help companies and investors gain a better understanding of the impact and net present value of investments in sustainability, typically with longer term horizons and involving risks and benefits that are otherwise hard to value.  Integrated reporting helps convey that value to investors and society.  Incorporation of these values into everyday investment decisions can be a driver of more beneficial practices in virtually all areas of human activity on the planet.

"ESG matters have been gaining momentum among investors," Ms. Mokote told Governments at the hearing.  "In the case of our fund, in addition to ESG matters, we also ensure we address the socioeconomic challenges in our country, resulting in a greater alignment between responsible investment and sustainable development."

The levels of additional financing required to achieve development that advances the world economy and allows for poverty eradication while also correcting environmental damage and social imbalances are on the order of $2.5 trillion per year, according to the United Nations Conference on Trade and Development.  Governments and civil society are calling on private actors to be part of the solution, and the Financing for Development Summit in Addis Ababa, Ethiopia, in July 2015 aims to design a broad vision for how to finance this “sustainable” development.

“It is truly remarkable to see that ESG already is included by Governments in the financing for development ‘zero draft’,” said Georg Kell, Executive Director of the United Nations Global Compact and moderator of today’s panel discussion.  “This is perhaps one of the main areas of advancement over the original, path-breaking financing for development agreement,” reached at a 2002 summit in Monterrey, Mexico.

The term ESG and the underlying concept were first proposed by the United Nations Global Compact’s “Who Cares Wins” initiative in June 2004 as a way of focusing mainstream investors and analysts on the materiality of and the interplay between these issues.  ESG is now part of the lexicon of mainstream finance.

The final version of the financing for development outcome document is to be signed at the Addis Ababa meeting.

For more information from the United Nations Global Compact, contact:  Tim Wall, wallt@un.org, +1 213 447 5954; or Jaime Garcia Alba, garcia-alba@unglobalcompact.org, +1 212 907 1337.