State Street: Covid-19 demonstrates social criteria are financially material

Channels: Debt, ESG, Green Bonds

Companies: State Street Global Advisors

People: Carlo Funk

"During the [Covid-19] pandemic it has become evident that environmental, social and governance (ESG) criteria – and social criteria in particular – are absolutely financially material for companies," said Carlo Funk, head of ESG investment strategy for EMEA at State Street Global Advisors.

Speaking at Environmental Finance's ESG in Fixed Income Europe 2020 virtual conference today, Funk said platforms such as the Sustainability Accounting Standards Board (SASB) framework have proven "absolutely paramount" for investors making risk assessments.

The SASB standards provide a framework to help businesses report on financially material ESG factors that are of interest to investors.

Funk went on to encourage more companies to adopt such reporting and disclosure mechanisms.

"Once companies start to disclose more financially-material ESG matters, it will make it easier for investors, ESG research houses and capital market participants to assess risks and opportunities when it comes to ESG matters," he said.

He also cautioned that institutional investors should remain focused on long-term value creation, despite recent events.

"[Earlier in the year] we issued statements to our investee companies saying that although the pandemic is very severe and that companies need to ensure that their businesses are still up running, that they should not move to short-termism and they should directly address and communicate how this pandemic is going to affect the long-term value creation.

"I wrote in a paper in the spring of this year that once the first shock [of the pandemic] had been digested, that people would realise – as a result of being pretty much slapped in the face by something so immediate – that the aspects around ESG are highly connected to value creation, and that will lead to a fundamental uptick in investors and institutional clients looking at ESG propositions.

"Fast forward to Q3 and the mention of ESG on earnings calls has increased 100% compared with Q1," he said.

More information on how to view this session and connect with delegates available here.

Annabelle Palmer