Blog on RR Ep #43: Why ESG Matters: A Chat with Jon Solorzano of Vinson & Elkins
By Ajay Shamdasani, host, Regulatory Ramblings Podcasts *
My discussion in episode #43 of HKU FinTech’s Regulatory Ramblings podcast** with Jon Solorzano was deeply enriching and uplifting. Simply put: the environmental, social and governance (ESG)*** movement is here to stay.
Jon is currently counsel and co-head of the ESG task force at law firm Vinson & Elkins in Los Angeles. Prior to that he was senior director for legal and corporate development at the Clorox Company.
We discussed why ESG matters to investors, companies and society at large – alongside the dish du jour of the last decade corporate social responsibility (CSR), as well as what appears to be the biggest bone of contention in corporate and policy circles these days: diversity, equity and inclusion (DEI). I appreciated Jon’s point that while such concepts and movements are related and overlap to some degree, they are not necessarily the same thing.
He astutely observed that from a branding and appeal to investor value standpoint, the way ESG is often presented is a prime example of bad marketing of something the world desperately needs from a sustainability and investment risk management perspective. As Jon emphasised, those that coined the term ESG would have won over more supporters to their cause had they led with the (G)overnance rather than (E)nvironmental concerns because even those that are sceptical of global warming can appreciate the importance of well governed companies and how that affects their investments in terms of share price.
Yet, the backlash has been pretty strident. These days few topics are as polarizing and contentious as ESG matters. Legendary investors such as Warren Buffet and his second-in-command, the late Charlie Munger, as well as other prominent corporate and finance figures like Jamie Dimon saying ESG should not be a consideration in making investments.
As Jon points out, there is a great deal of ignorance of what ESG actually is. ESG has been misconstrued by both detractors and proponents as something it is not – critics argue it is pushing a politicised agenda and cheerleaders often think it is about impact investing – when in reality, it would be best to think of it as a toolkit for decision-making. What gives me cautious optimism is that a tell-tale sign Jon’s predictions are on the money is that for younger constituencies, and particularly investors, ESG definitely matters as a yardstick in gauging what constitutes a socially conscious and/or sustainable investments – and the data to that effect is glaringly abundant: no matter what the old-timers say.
Notwithstanding the concerns of ESG detractors and naysayers, I agree with Jon that within less than two decades from now, the nature of the discussion will be very different; by which point we will not be debating whether or not ESG has its uses but rather, how to improve it. Ten to 15 years from now, few will even question the importance of ESG to the world’s economic, ecological and social well-being, he said, as the millennials and Zoomers take over the reins of society all across the developed world.
Our conversation concluded on to what extent ESG mandates intersect with financial regulation, and why should banking and financial institutions globally need to take ESG as seriously as their regulatory compliance and risk management requirements. No matter one’s personal views on the wisdom of ESG, key global regulators such as the US Securities and Exchange Commission and Hong Kong’s Securities and Futures Commission are finally addressing the importance of ESG, and companies and investors must prepare for this new and highly regulated future.
DISCLAIMER: The opinions expressed in this blog are the author's own and should not be taken as official positions or advice from any other entity.
* Ajay Shamdasani, a Hong Kong-based veteran in writing and research, holds degrees in history and government, law, and financial regulation 🔗. Ajay is part of the HKU Reg/Tech Lab team promoting 'Digital Finance, Financial Inclusion and Sustainability: Building Better Financial Systems'.
** Regulatory Ramblings podcasts is brought to you by The University of Hong Kong - Reg/Tech Lab, HKU-SCF Fintech Academy 🔗, Asia Global Institute 🔗, and HKU-edX Professional Certificate in Fintech 🔗, with support from the HKU Faculty of Law 🔗.
*** For further reading, please check out the recently published book by Ross P. Buckley, Douglas W. Arner and Dirk A. Zetzsche: FinTech: Finance, Technology and Regulation. The contents of this book were also discussed in our podcast with Dirk A. Zetzsche - tackling the need for alignment between financial innovation and regulatory policies to navigate the complex issues facing the industry today: RR Episode 31 - Dirk Zetzsche.
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