Fed, evolving attitudes, and shifting capital drive push for ESG transparency

By, Gregory Fabso / Published on December 30, 2020

Sustainability is no longer a must-have. It’s a must-share.

2020 has seen a series of announcements from major banks and financial institutions that are prioritizing sustainability and becoming much more vocal about their initiatives. In January, Black Rock’s Larry Fink declared the asset management company is placing “sustainability at the center of [its] investment approach.” He argued for greater transparency, saying “Disclosure should be a means to achieving a more sustainable and inclusive capitalism.” In July, major banks answered the call. Citigroup announced it would measure and disclose emissions related to its portfolio, and Bank of America joined the Partnership for Carbon Accounting Financials (PCAF) in an effort to become more transparent around the climate impact of its loans and investments. Adding to the trend, Morgan Stanley became the first major U.S. bank to set a goal of reaching “net-zero financed emissions” by the year 2050. Then in November, for the first time ever, the Federal Reserve formally highlighted climate change as a potential threat to the stability of the financial system.

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Environmental, social, and governance (ESG) transparency is a way for organizations to do good for the environment and hold themselves accountable to consumers who are increasingly attentive to sustainability and climate change. But it’s also good business. And as more organizations begin to disclose ESG initiatives and increase transparency, other companies are feeling the peer pressure to fall in line and hold themselves to the same standards.

This has been a boon for ESG initiatives like solar solutions and other renewables. And it shows no signs of slowing down.

How sustainability went from a nice-to-have to a must-have

Over the last couple years, companies’ attitudes toward climate change have evolved. The phase one approaches they had taken to address their carbon footprint focused on their own offices, stores, supply chains, data centers, and technology. Now they’re getting more granular. They’re following the threads beyond their own supply chain to the logistics and supply chains of their suppliers, aiming to assess the climate impact of everything their business touches.

ESG transparency is a way for organizations to do good for the environment and hold themselves accountable to consumers who are increasingly attentive to sustainability and climate change. But it’s also good business.

Among the Fortune 500, many companies have established sustainability offices, with teams tracking and managing their efforts and determining how they fit within the broader company’s capital planning, environmental initiatives, and overall business objectives.

Capital is increasingly shifting toward companies that either have sustainability initiatives in progress or have already decarbonized much of their footprint. The writing is on the wall. Any organization that isn’t prioritizing ESG efforts will be left behind, no matter its industry.

The sustainability imperative is driving investment in renewables

ESG transparency has fueled the market for solar projects, with pension funds, sovereign wealth funds, private equity, hedge funds, insurance companies, and U.S. banks all actively investing in renewables.

This larger, more diverse pool of potential buyers for renewable energy portfolios continues to grow. Companies that pursue ESG initiatives are seeking solar, wind, energy storage and other hybrid solutions to decarbonize their footprint and realize cost savings, creating more opportunity for investors.

The distributed energy sector shows no signs of slowing down, even through the economic challenges in 2020. Across the board, pipelines have largely remained intact. In a year where companies, municipalities, school districts, and other organizations are scrutinizing every line of their budget, renewable energy remains a high-priority to meet sustainability goals and achieve cost savings.

Good news for sustainability is good news for business

When companies install a renewable energy solution at one of their sites, it’s a source of pride. They hold kick-off events before construction and cut ribbons as solutions come online. They showcase the initiative to the general public, local leaders, and media. We help them translate the impact, converting the kilowatt hours saved into the equivalent number of cars taken off the road or the metric tons of carbon emissions eliminated.

ESG transparency and renewable energy are no longer nice-to-haves, they’re must-haves and must-shares. If you have a high carbon footprint and you’re not actively investing to reduce it, it could limit your avenues for growth. Many large investors take sustainability into account as they allocate capital. In fact, recent research from PwC shows that 77% of institutional investors plan to stop investing in non-ESG products by 2022. That holds organizations and executives at the highest levels accountable, because if you can’t attract capital, you can’t grow.

The evolution has started, and now it’s picking up steam. As more companies become more vocal about their sustainability, the continued growth in the renewables space will give them plenty to talk about.

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