Market Insights

By Meigan Terry, Senior Vice President, Chief Communications & Social Impact Officer, Scotiabank

Companies have long touted corporate missions and values – often focused on what they offer and how they do it better – but many are now embracing a bigger-picture purpose, connecting their business with its impact on the planet and society.

The long-held view that a company’s accountability is to its shareholders alone is waning. Stakeholders such as customers, communities and the market now expect companies to have a corporate sustainability strategy and incorporate environmental, social and governance (ESG) factors across their business.

Investors’ appetite for sustainable investment is growing. It is part of the shift to look beyond the bottom line and seek purpose-driven impact as an indicator of a company’s long-term investment attractiveness. Last year, green bond issuance rose 13% to a record US$305.3 billion, while Scotiabank analysts forecast that sustainable debt, which includes green bonds, could reach over $1 trillion in 2021.1

Demonstrating action on ESG has moved beyond a moral imperative to a market imperative, and a huge opportunity. To participate in the growing sustainable finance marketplace, however, companies must first examine their organizations through an ESG lens and articulate their purpose so they can explain their place in a world where sustainable thinking is ubiquitous and growing.

Until recently, many companies simply donated funds in the communities they operated in to demonstrate their underlying values. But pressing global concerns such as climate change and growing attention on far-reaching social issues made worse by COVID-19 have driven many companies to think bigger. Now, they are linking business decision-making more closely to their purpose and their desire to meet corporate sustainability objectives. Moreover, much like when they conduct traditional business, they want to see a return on their community and social investments – moving from ‘giving’ or ‘donating’ to creating social outcomes and impact.

That dovetails with investors’ growing desire to invest in companies that reflect their own values. The investment community is focusing on ESG to ensure reliable, long-term financial performance, mitigate portfolio risk and satisfy their own priorities. The result is that institutional investors are integrating ESG considerations into asset allocation, considering the societal impact of their investments, and pledging Net Zero Emissions by 2050 or pressing companies in their portfolio to do so.

A positive feedback loop is forming in which investors seek companies with the right values, and companies are willing to shift their values to attract investor capital. We are now witnessing that phenomenon, as companies across diverse sectors decide to develop sustainable finance strategies to attract ESG investors.

At the very least, companies are starting to realize the need to re-examine their contribution to society and their sustainability track record. Whether or not a company ever decides to pursue sustainable financing, sooner or later their stakeholders will ask about their ESG impacts. The best course of action is for companies to be prepared to define sustainability as it relates to them, describe their actions, and make this information available for public scrutiny.

Many companies are now embarking on a corporate sustainability journey, in which they define their corporate purpose and determine how they fit within society and what impact they want to have on it. Then they need to establish goals for improvement, set targets to measure impact, and build a cohesive story for all stakeholders. This narrative is essential for companies that choose to raise capital based on their purpose and values.

In early 2018, Scotiabank embarked on a process to rearticulate our organization’s core purpose. It took nearly a year and involved in-depth interviews with our CEO Brian Porter and engagement with the Bank’s Operating Committee and other key executives. We also held focus groups and listening sessions with employees in various divisions, levels and countries across the Bank’s footprint.

This collaborative process was key to articulating a core purpose that is both authentic and resonates throughout the organization. That purpose is encapsulated in the phrase for every future. From helping customers prepare for the road ahead to fostering economic resilience among disadvantaged groups to various efforts towards mitigating the impact of climate change, we look to maximize our positive impact on our operations, our customers and the world around us.

In recent years we’ve made strong purpose-led commitments in four ESG pillars – environmental action, economic resilience, inclusive society, and leadership and governance. For example, in 2019 we committed to mobilizing $100 billion by 2025 to reduce the impacts of climate change. As of year-end 2020, we had mobilized more than $28 billion toward that target. From the economic resilience perspective, the Bank in January launched ScotiaRISE, a 10-year, $500-million initiative to promote economic capacity among disadvantaged groups. As well, we are steadily moving up the ranks in third-party sustainability ratings and are currently the only Canadian bank awarded MCSI’s AAA rating for ESG this year.2

In turn, we are well positioned to help our clients think holistically about the way they fit into the broader society and how to best attract capital. Our ability to do this is rooted in our own ongoing journey to respond to ESG issues that are important to our investors, customers, employees and the communities where we live and work.

Banks, like many other types of organizations, are increasingly being called on by customers, investors, and other stakeholders to measure, value the impact of, and take strategic action against a much broader set of ESG metrics. They are being held to a higher ESG standard – and it’s an opportunity for those that rise to the occasion to stand out.

We are proud to be at the centre of this highly impactful, evolving discipline to bring real value to our clients, the markets, society and our planet.