WHETHER they be small companies or mighty enterprises, businesses around the world are having to prioritise sustainability. Expectations that they will play their full part in addressing issues such as the climate emergency grow by the day. Climate change can no longer be plausibly denied.

We see it in some of the extreme weather events we are experiencing, and activists such as Greta Thunberg constantly remind us of the importance of action now. Millennials in particular see this as an imperative. Linked to this is a strong drive to create a fairer and better global society, with movements such as Me Too and Black Lives Matter capturing public attention. The need for businesses to embrace Environmental, Social and Governance (ESG) issues has never been greater.

One company treating ESG as a priority is the international financial enterprise J. P. Morgan, which has centres in both Glasgow and Edinburgh and is one of the largest financial services in the country. The company’s Private Bank Regional Head for the UK, Ireland and the Channel Islands, Oliver Gregson, has a personal passion for sustainability. “I think in the last few years, it’s become a professional necessity”, he says. “Last year was the largest for extreme weather-related insurance losses ever and the Covid pandemic has underwritten and accelerated the social and governance debate, as at its core it’s been a health and societal crisis.”

The science on climate change is now unequivocal, Mr Gregson says. “Humanled activity is causing climate change and damage at an unprecedented level. We are heading for above three degrees temperature rise. The impact? Biodiversity loss, water shortages, food poverty, mass people migrations and sea level rise to name just a few. It’s not a case of if, but of how fast, and change is happening much faster than we predicted.”

He points out that the climate emergency ties into other ESG issues which need to be planned for. “Take population growth and the depletion of natural resources. There were a billion people on the planet in 1804 – now we are rapidly approaching 10 billion. That is going to put strain and stress on things like food and healthcare. We are going to need to produce more food in the next 30 to 40 years than we have in the whole history of humankind.”

Another huge change is taking place in the financial ecosystem and the consumer world. “People are really wanting to invest their money with meaning and to align their portfolios with their principles. More consumers and institutions are asking companies to be socially and environmentally responsible. They are voting with their money and paying a premium for products and brands with positive impacts.”

Mr Gregson sounds a warning that there is a disconnection between the lofty principles and rhetoric of international conventions and the hard, election-driven, and self-interested reality of domestic politics. This may, however, change in future as politicians are forced to adapt to the hardening of the public mood and the increasing importance the electorate place on the issue. The legal and regulatory context is certainly starting to make ESG related commitments mandatory in some jurisdictions.

“From a private banking perspective, these issues are becoming material, being too big to ignore for clients from both a risk and returns perspective. The ESG factors present risks to financial securities – for instance, the risk could be the impact of coastal flooding on mortgage books that banks own. Leaders in this area generate a more stable and higher quality of earnings and that attracts a premium in terms of valuation. The availability of options for things like high-net-worth sovereign wealth funds has really grown.”

Of course, there are any number of stakeholders in an ESG-focused business - clients, investors, employees – who have an interest in sustainability and stand to benefit.

“At J. P. Morgan, we have worked hard to progress our overall approach to ESG as a firm. We made a Paris-aligned financing announcement in October of last year to align key sectors of our financing portfolio with the goals of the Paris Agreement and supported with $2.5 trillion over 10 years of financing commitment – beginning this year through the end of 2030 – to advance long-term solutions that address climate change and sustainable development. The firm has also set 2030 emission reduction targets for its Oil & Gas, Electric Power, and Auto Manufacturing portfolios. Over time, we intend to integrate additional sectors into its commitment and set targets for the Aviation and Pulp & Paper sectors by the end of 2022.

“But we have also focused on a ‘just transition’ and are committed to also progressing the social and governance aspects. Our firm introduced The Path Forward in October, committing $30 billion over the next five years to address the key drivers of the racial wealth divide, reduce systemic racism against Black and Latinx people, and support employees. Also 50% of our global workforce are women and 50% of our US employees are diverse.”

Ever more robust reporting and disclosure requirements are also having an effect on companies. “They are causing people to ask questions. Boards now have some regulatory responsibility around this and their approach to human capital. This is being linked to executive remuneration. Investors are looking for a better quality for less risk. The fact is that in 90 per cent of circumstances you suffer no financial detriment in investing in ESG. Studies have shown that in two thirds of cases, you actually generate outperformance. It’s a real positive.”

There are also advantages to employees, Mr Gregson says, “There is a lot of evidence that shows the advantages of being more productive, considerate and thoughtful when it comes to people. “Companies paying below minimum wage or not thinking about how their supply chains are optimised are seeing an impact on their brand, their reputation and their share price.

“Clients, too, are really important”, he explains. “Female customers are a large and growing part of our business, and we recognise that in the past, female wealth has been poorly served or poorly understood. They may want to do more with their money than just generate a return. And 87 per cent of our millennial clients tell us that the ESG route is the way they want to invest. To my mind, in 10 years’ time we won’t be calling it ESG any more. It will simply be the way things are done.”