There is no doubt that sustainability considerations have found their way into many areas of our lives. The global Fridays for Future movement is just one of several calls to action to significantly reduce carbon emissions and make the world more climate-resilient and socially equitable – and thus a better place to live. The adoption of the Paris Agreement, the UN’s Sustainable Development Goals, and the recent initiatives by the European Commission (e.g. EU Green Deal, Strategy for Financing the Transition to a Sustainable Economy) are driving demand for low-carbon goods and services around the world. Thus, the sustainability wave has spilled over into the real economy and the financial sector, forcing stakeholders to rethink legacy business models and practices. Environmental, social and governance (ESG) considerations, being the main pillars for sustainability, have become key drivers for investment and other business decisions, as sustainability-related risks, e.g. climate change, have started to gain wide recognition.
The fragility of unsustainable business models and lack of practices for a resilient and robust economy – as well as survivability – became apparent early in the COVID-19 pandemic, leading to the collapse of stock markets and global value chains in early 2020. Now that some countries are starting to move out of the pandemic shock, calls for green recovery packages with environmental, regulatory and fiscal reforms intended to generate prosperity have become prominent. The pandemic also has provided insights into sustainability-linked company performance. Investors have experienced directly how catastrophic events (e.g. climate change) can affect their investment returns. This led them to take sustainability risks more seriously and require their investees to disclose sustainability-related information (ESG data). Many companies with high ESG ratings and valuations are coming through the pandemic better than their peers, and ESG funds and indices have outperformed the broader market (MSCI; December 9, 2020). With total assets in sustainable funds reaching almost USD 1.7 trillion – a 50-percent increase from 2019 – we can confidently call 2020 “The Year of ESG.”
However, the pandemic crisis is not the only factor that led to this dynamic. In recent years, the demand for sustainable investments has been driven partly by the entry of a newly prominent investor group into the market: millennials. Among this group – those born between 1981 and 1996 – 95 percent are interested in sustainable investments. Millennials will inherit around USD 30 trillion from their parents – baby boomers – within the next few decades. These young investors tailor their portfolios according to their personal values, often considering companies’ ESG track records an important factor. Similarly, they exclude investments with certain exposures (e.g. fossil fuels, child labour) and look for investments that result in desirable effects (e.g. green technologies, education and health). This transition toward a green economy also has the potential to create sustainable jobs. These jobs will require technical skills and soft skills, including environmental awareness, teamwork, analytical skills, leadership, management and entrepreneurial skills. The International Labour Organization (ILO) estimates that in the sustainable energy and circular economy sectors, only 2 percent of global jobs are at risk of disruption, and there is the potential to create over 100 million new jobs – if workers receive sufficient training to fill them. To help businesses prepare for this transformational change – in an even more competitive environment that goes beyond classical KPIs and takes ESG criteria seriously – future leaders and executives need to be equipped with new skills.
Institutions such as Frankfurt School have a critical responsibility to educate the next generation to be sustainability-conscious citizens who understand the significance of environmental and social responsibility. That’s why we create new perspectives in finance and management to build a sustainable future. Two of our 6-month online programmes, Certified Expert in Sustainable Finance and Certified Expert in ESG & Impact Investing, develop the necessary skills for finance professionals to be able to identify ESG-related risks and opportunities, develop suitable financial products, and design sustainable investment and management processes and strategies for their businesses.