Imagine this: you are a graduate student enrolled in a one-of-kind course on impact investment funds while debates are ramping up across the country on whether financial institutions should report on socially and environmentally responsible investing¹. At the same time, you are excelling in a course advising companies on integrating social sustainability strategies across people, planet, and profit. Your previous experience shines brightly through your coursework, and a professor recommends you support the Dean of the Kogod School of Business, David Marchick, with a presentation on how sustainability investing is the path forward. No pressure, right?
The urgency to address the climate crisis is changing how the world conducts business and how customers, employees, and shareholders engage with companies. Climate change poses several financial risks, and investors are starting to place more pressure on businesses to act. Companies are considering issues such as economic and environmental sustainability, fair labor practices, and social justice, among many others. ESG has risen to the mainstream as the future regulatory landscape may require companies to report on ESG and climate risks. The elephant in the room is how can businesses appeal to diverse shareholder needs, such as strong financial performance and growth versus measures to reduce emissions and advocate for a healthier, prosperous planet for all?²
What if you can make the case for both?
Bhagyashree More, a graduate student at the Kogod School of Business, rose to the challenge to make the business case for sustainability. I met up with More after our sustainability accounting class to learn more about her experience navigating the jungle of ESG investing.
Originally from Mumbai, India, More moved to Washington, DC, to pursue an MS in Sustainability Management at American University. More, who previously worked for consulting firms like Ernst & Young and KPMG on risk, governance, and compliance, has the perfect mix of background and skills to embark on researching how investors can measure company contributions across the triple bottom line and utilize this information to make key financial decisions.
What is ESG investing?
Leading provider, MSCI, defines ESG investing as “the consideration of environmental, social and governance factors alongside financial factors in the investment decision-making process.³”
More than 90 percent of S&P 500 companies publish a form of ESG reports in some form, including approximately 70 percent of Russell 1000 companies.4
Isabela Barriga (IB): You have such an impressive background! Tell me more about the ESG research that you put together for the Dean.
Bhagyashree More (BM): I was involved in putting a slide deck together for a large global asset management firm to showcase how sustainability investments are performing. I dived into funds and indexes to better understand how the market is doing. In collaboration with the asset management team, we examined the overall asset management in the entire industry, and we found an upward trend in sustainable fund flows as the fastest-growing asset classes in the United States, Europe, and the rest of the world. This is a global snapshot of how the asset management industry is moving towards investments in sustainability.
IB: Can you walk me through the asset classes that you analyzed?
BM: We broke it down by assets and sectors, including sustainable debt such as green bonds, social bonds, green loans, and more. These are sustainability loans and bonds that investors contribute to green projects and receive financial returns. We’re seeing growth in the environmental sector, particularly in renewable energy, but the social sector could use more attention.
IB: What is the expected growth in overall global assets, and who is leading this?
BM: New sustainable funds are being launched every quarter. Europe is leading this, followed by the United States and then the rest of the world. We looked at the overall assets management industry and divided it into standard funds versus ESG funds. Our data shows that by 2025, the ESG-mandated assets will outperform the non-ESG-mandated assets. There are already some ESG funds that are outperforming non-ESG funds. We mapped the performance of 500 ESG versus S&P 500 over the years in the market, and most data shows a correlation with the overall market – we already see 500 ESG funds outperforming S&P 500 Index funds.
IB: How did shareholders from the board meeting use this information for decision-making?
BM: With the current regulatory landscape, the SEC is proposing additional specific ESG disclosure requirements, such as disclosure of their carbon footprint. These regulations will be a huge gamechanger – and it has sparked controversy in the investment management industry.
Once ESG is a regulatory requirement, it will change the entire landscape, and investors should start preparing now.”
Bhagyashree More
Sustainability Management Student, Kogod School of Business
IB: What were your overall recommendations for the board members of this asset management firm?
BM: To consider investments in sustainable funds for several points, such as surging fund flows (increased liquidity) and reduced cost of capital. Research shows that anyone investing in an ESG-integrated fund will likely see a reduced cost of capital – this was one of the most significant selling points for investors. There is also a likelihood of higher company valuation, improved brand value, and enhanced political scrutiny through sustainable investing.
IB: What challenges of ESG investing should investors be aware of?
BM: Some cons to consider include the upfront cost to invest in sustainable funds; therefore, prioritizing ESG investments is a big decision for shareholders. The most significant barrier is that there are no clear ESG standards to prove that ESG funds outperform standard funds, and there’s a risk of tension with fiduciary responsibilities. There is also an issue with reporting and transparency, causing investor blind spots toward ESG significance and company impact. It’s challenging for investors to know exactly what companies are doing with ESG, so there could be confusion about the value of ESG initiatives or claims of greenwashing. These are key areas that we need to work on proactively.
IB: Do you think the SEC’s proposed rule for climate-related disclosures pushes investors to step up when showing their impact and commitment to sustainability?
BM: Yes, it’s only a matter of time for the data to prove this over time. It depends on the leadership and if they want to create a positive impact and use their corporate power to show that they are ESG driven to make a positive impact. It has to do with people’s mindsets and seeing this [SEC] as an urgent requirement.
IB: Learning the alphabet soup of ESG is like learning a new language! Coming from a finance background, what are your thoughts on this, and how do we keep up with the fast-evolving ESG field?BM: I’m grateful for my finance background so I can decipher the challenges linked to the financial aspects. We could have the greatest sustainability initiatives, but if we don’t have the money to put these initiatives in motion – then what is the point?
We need more people to invest and believe in ESG in the first place.”
Bhagyashree More
Sustainability Management Student, Kogod School of Business
BM: History always repeats itself. When the world was in a previous phase where we needed robust accounting frameworks, which is now a common practice, I can imagine we were going through the same challenges we’re going through right now with ESG. In one class, we learned how the Sustainability Accounting Standards Board (SASB) and International Accounting Standards Board (IASB) are coming together to collaborate on a globally accepted standard. I’m looking forward to seeing how regulators come to a consensus on ESG across geographies that may have different gaps and needs.
IB: Data is so powerful when put in the hands of decision-makers. How did it feel to assemble this information for a closed boardroom discussion?
BM: It was fulfilling and great to see the research also used for other purposes. I also supported a project for the Climate Finance India-U.S. Track II Dialogue moderated by the Aspen Institute. Dean Marchick presented our similar research and data findings to policymakers from the United States and India. It was also great seeing how India is approaching sustainability investing and exploring areas such as green finance and blended finance.
IB: Thank you for sharing your story! What are you most hopeful for in sustainability after you graduate?
BM: I’m hopeful that five years from now, we’ve made a shift, and we see in the news that all the [sustainability] efforts paid off and that we’re doing something impactful globally. I hope to hear positive news in any space – either in the social, environmental, or government space. My hope for future generations is that we have created a safe space for them to thrive.
Situated at the intersection of business and sustainability, Kogod attracts students from the US and abroad pursuing careers in the public, private, non-profit, and NGO sectors. Learn more about Kogod’s MS in Sustainability Management and explore the courses preparing the next generation of sustainability leaders here.
Editor’s Note: The research mentioned in this article was captured from a presentation on sustainability investments provided by Dean Marchick, Kogod School of Business, to board members of a global asset management firm.um est iusto? Minima, laborum.
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