ESG drives new FII Institute framework for inclusive growth

Leading corporates have backed a new framework for ESG standard of sustainable growth, at a high-level conference in London where the challenge of meeting climate and ethnical standards was debated.

The importance making correct choices on Environmental, Social, and Governance standards was underlined by the governor of the Saudi Public Investment Fund, Yasir Al Rumayyan, who addressed the gathering.

“The problem we have faced over the last few years is that people have wanted to switch on and off from the carbon/fossil fuel economy to the renewable,” he said. “We just can't do it — you can't just turn on and off the switch.

“It's a process that we need to take forward. The net-zero ambition is not just a planet imperative, it is a business imperative.”

Giving an example of how Saudi Arabia's state oil producer had reduced its carbon footprint through tackling flaring a decade earlier than its rivals, Mr Al Rumayyan said that was a process that was continuing with new investment streams.

“We are investing in renewable, we're investing in carbon capture and storage, we are becoming a pioneer there and I think this will lead us to blue hydrogen. We will be the major player in the world when it comes to blue hydrogen.”

Blue hydrogen is fuel produced from natural gas through a process in which natural gas is mixed with very hot steam.

Noel Quinn, the head of HSBC, observed that businesses were under great pressure to take brave decisions but that the role of regulation was key. He pointed to a recent G7 communique on sustainability in aviation and the knock-on effect of setting a clear goal.

“One sentence in a communique collectively can create a demand,” he said.

“A demand signal can be written in one sentence and that for the aviation industry was about sustainable aviation fuel as 10 per cent of the fuel mix by 2030. That demand signal then creates a supply of finance. Not all policy requires money — some policy requires sentiment.”

Bertie Whitehead, the managing director of UK investment banking with Goldman Sachs pointed to the power of governance standards in the wake of the Russian invasion of Ukraine, where companies wrote off billion-dollar investments even before the sanctions noose was tightened.

“You saw leadership at the start by number of companies that [declared], 'I want to exit Russia and Belarus.' Then you saw societal and indeed consumer pressure coming through, there were a couple of automakers where they started getting action put on them with tweets or Instagrams and they ended up changing their ways.

“This is a real life action of trying to preserve [corporate] value through values and a lot of the decisions were being made were that was actually better for my standing as a company to listen to what my customers want, to listen to what I feel as a company and exit at a risk to a balance sheet that in many instances is as well reported, at a significant cost to the company but overall preserving market value.”

Richard Attais, the head of the FII Institute, noted that only a small proportion of the ESG fund available annually was directed towards the world's developing countries, which represent 86 per cent of the population and currently 58 per cent of gross domestic product.

New measures of ESG performance could unlock those funds for developing economies. The framework backed by FII Institute rests on four points: key performance indexes tailored for emerging economies, performance thresholds set for developing economies, scorecards based on change delivered not volume of data and measured against sectoral challenges not national performance.