Pressure building on companies to go green: Goldman Sachs

The past few years have seen a ‘tidal wave’ of pressure on companies to produce more environmentally friendly products and report progress on reducing their carbon footprint.

Goldman Sachs’ Letitia Webster says private companies need to be ready to come under pressure from clients, customers and investors to be more environmentally sustainable and to be able to report progress in reducing their carbon footprint. Picture: Getty Images

The past few years have seen a “tidal wave” of pressure on companies to produce more environmentally friendly products and report progress on reducing their carbon footprint, according to the chief sustainability officer for Goldman Sachs’ asset management division, Letitia Webster.

Ms Webster, who was speaking to the Australian ahead of her appearance at the Australian Institute of Superannuation Trustees (AIST) conference in Brisbane this week, said she had been involved in pressing the case for companies to reduce their environmental impact for the past 20 years.

“I was always knocking on doors and telling companies that they should pay attention to sustainability and that we should be doing more,” she said.

“Over the last couple of years there has been an onslaught of requests, interest and demand for more sustainable products and for companies to show they are making progress in reducing their carbon emissions.”

She said the big increase in momentum had come in the wake of the Paris Agreement on Climate Change in 2015.

“The momentum has shifted. It’s maybe since Paris that the needle really started moving. Then the Glasgow conference last year and Covid accelerated everything. I feel this immense sense of urgency which is incredibly exciting.”

Ms Webster, a former executive with outdoor clothing and equipment company The North Face, where she focused on strategic marketing and sustainability, joined Goldman Sachs two years ago as a managing director in its Sustainable Investment group – a new group set up within the firm to focus on sustainable investing.

In her comments at the conference, she will warn private companies they need to be ready to come under pressure from clients, customers and investors to be more environmentally sustainable and to be able to report progress in reducing their carbon footprint.

While the focus has been on listed companies, she said Goldman Sachs was now advising its private company clients they could also expect to come under more scrutiny.

“It’s all cascading down,” she said. “Large public companies are now making reports to their investors (on their plans to become more environmentally sustainable).

“Private markets have flown under the radar compared to the scrutiny on public companies.”

But she added that many smaller private companies were suppliers to big companies which were under pressure to report the emissions of their suppliers.

“They (the big companies) need to say – when they look at their Scope Three emissions – what are the emissions of their suppliers? They will be asking them to report on what they are doing.”

Ms Webster said Goldman Sachs was planning to invest $US750bn ($1.06 trillion) in sustainable finance by the end of the decade, as part of its commitment to countering climate change.

The firm had already begun investing across a range of areas including green bonds, renewable energy, and in infrastructure such as companies involved in electric charging stations and battery companies.

Ms Webster said the 10-year investment plan, which started from 2020, was part of the firm’s broader environmental policies.

“We outlined our first environmental policy in 2005 and we have been carbon neutral since 2015,” she said. “We offset our Scope 1 and Scope 2 emissions and business travel for employees.

“We signed onto the Net Zero banking alliance last year.”

She said the firm had set a goal of having net zero carbon emissions in its financing of three major sectors – power and utilities, oil and gas, and the automotive sector.

She said it was also making investments in sustainable food and agriculture.

“We are looking at everything from meat alternatives to looking at agricultural practices and land management processes, to reduce the use of chemicals, fertilisers and pesticides and reducing the carbon intensity of our food.”

Ms Webster said the corporate world needed to move towards more standardised reporting frameworks on what they were doing to move towards net carbon zero and other ESG issues.

She said there was a “proliferation of frameworks” for reporting on climate change and ESG issues.

“This fragmentation is creating a lot of inefficiencies in the system,” she said. “It means that everyone is asking for different things at different points in time.

“People are asking for metrics in different ways. It means that we aren’t focused on the real work which is reducing carbon emissions within companies and helping them be better supply chain partners and develop more low carbon, environmentally friendly products.”

She said there needed to be global alignment around standard reporting frameworks such as those set by the Taskforce on Climate Related Financial Disclosures (TCFD), the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI) and the United Nations backed Principles for Responsible Investment (PRI).

She said there had been a “lot of smart people” who had been developing these reporting frameworks over the past few decades and investors should be using them when they talked to companies about their progress on implementing their ESG plans.

“When there is a proliferation of frameworks and questionnaires, it takes the eye off the ball and distracts from actually getting the work done,” she said.

Ms Webster said the world capital markets were now playing a major role in encouraging and financing a move towards a more low carbon world. This included financing new technologies such as electric cars.

“The capital markets are now coming in and making sure that technology has the capital to meet demand,” she said.

“It is an exciting time for capital markets and investors because we are now a significant part of the equation.”