This week, world leaders are gathering in Paris to demonstrate global unity in the face of recent atrocities and take part in humanity's most important talks on climate. They arrive at COP21 at a time when change is in the air. A fundamental transformation is altering how markets work, promising to redirect entrepreneurial energies towards cleaner, greener and more inclusive societies. A growing number of people from all walks of life, old and young and from diverse cultural and religious backgrounds are searching for new ways to conduct business. They share one vision: combining economic value creation with environmental stewardship, social inclusion and sound ethics. They are collectively the custodians of tomorrow - as we all are - who understand the power of sustainability to create positive change.
They are 'Generation S'.
The term, whilst new, reflects a movement that has in fact been growing for years and is recognized in guises such as 'corporate sustainability' or 'responsible investment'. The actions of Generation S range from redefining the purpose of the corporation to new accounting methods including integrated reporting and innovative investment vehicles such a thematic bonds linked to environmental or social goals. Underpinning these developments is a common and broadening acceptance that business as usual is no longer a viable option, and that business success now goes beyond mere short-term reward. Environmental, social and governance (ESG) factors are no longer extra financial considerations. They form part of the very foundations of successful markets.
The seeds for Generation S were first planted in the late 1990's when former United Nations Secretary General Kofi Annan called on business "to initiate a Global Compact of shared values and principles, which will give a human face to global markets" in a landmark speech at the World Economic Forum. Those words led to a global movement which has grown steadily ever since, with the UN Global Compact now the world's largest corporate sustainability movement with over 8,000 corporate participants. These signatory companies are at various stages of integrating ESG issues into their mission, strategies and operations and they are disclosing such progress on an annual basis alongside financial performance. Through the Global Compact and many other initiatives that pursue similar goals, corporate sustainability is a rapidly growing international movement.
The great sustainability shift has also started to occur in the financial world too, albeit with a significant lag. In 2004, the landmark study "Who Cares Wins" first coined the term "ESG" as shorthand for materially relevant non-financial issues. Few investors, if any, paid attention. But just one year later came the inauguration of the 'Principles for Responsible Investment' (PRI), a movement formed at the New York Stock Exchange by a group of asset owners with a common belief that ESG integration should be part of fiduciary duty.
The responsible investment movement, while still playing catch-up to the real economy, has grown rapidly in the intervening years. The PRI now has over 1,400 members representing over US$50 trillion, and countless new and innovative products are emerging that cater to the growing pool of socially responsible investors.
As we arrive at the United Nations Conference on Climate Change in Paris, one of the last great opportunities to shift towards a low carbon future, I look around to see who else makes up Generation S. I see thousands of individuals who are redefining the ecosystem for market valuation and performance measurement. Fifteen years ago, there were no standards and very few guidelines on how to account for and deal with non-financial issues in the supply chain, at the workplace or in the community where business operates. Air pollution and water consumption were considered "externalities" that did not show up in the balance sheets. Today, such guidance is everywhere, ranging from carbon pricing to human rights issues in the supply chain and an army of ESG analysts, all forming a rich and connected infrastructure to facilitate positive change. A recently created initiative for instance, the 'Global Initiative for Sustainability Rating (GISR) lists more than 400 commercial products for rating alone on its website.
In fact, I see that Generation S is made up of people from all walks of life, whose actions are inter-connected and together can form an intricate, harmonic arabesque to facilitate the integration of sustainability across markets and society.
They speak many languages and have many varied backgrounds. What they share is a binding passion for entrepreneurship based on values that deliver the solutions our resource-constrained and unequal world so desperately needs. They know that old models of classic industrialization have to give way to cleaner and smarter forms of value generation. They see opportunities where others preach doomsday scenarios. They do not fear the future or technology because they understand they can make the future we want and harness technology to succeed. They embrace transparency, looking up the peer network recommendation, rating and benchmarked review of almost every commercial choice they make. They ask why and how and when, and understand that the things which connect us are stronger than those that divide us.
Evidence is growing of this societal shift towards sustainable finance. A report released earlier this month by the Judge Business School at University of Cambridge, in collaboration with BNY Mellon, showed that millennials would allocate 42% of their investment portfolio to 'social finance', given the choice. And a recent study from MIT Sloan School of Management, based on conversations with over 40 ultra high net worth families and advisors with a median net worth of $500 million, revealed that almost 90 per cent of family members interviewed wanted MIT's advice on delivering greater societal impact.
Generation S is not yet a majority, but it is a rapidly growing movement with a broadening and diverse congregation, and I believe a tipping point is within sight. As empirical evidence emerges showing that companies which focus on material sustainability issues also produce better financial returns, Generation S stands a fair chance of bringing about real change.
Technology continues to drive the solutions for tomorrow and is putting a premium on disclosure and measurement of ESG issues. Regulation in response to climate change and economic exclusion as well as changing stakeholder expectations will continue to propel the movement. And with individuals and asset owners now demanding sustainable investments that that deliver profit and positive social and environmental returns, the stage is set for Generation S to transform markets from within.
So the question is, are you in?