“It is exciting to see the rapid pace of technology development, and cost reduction, in a wide range of products that can help ensure the transition to a lower-carbon economy without incurring higher costs or sacrificing grid reliability,” said Stephen Byrd, Head of Global Sustainability Research at Morgan Stanley. “We continue to focus our ESG efforts on ‘Rate of Change’ companies that can achieve both improved financial results and improved ESG metrics—and the underlying improvement in clean energy technologies is a core element of this ‘Rate of Change’ dynamic.”
AI and Data Analytics for ESG
Corporate leaders at the Summit spoke about the potential for AI, such as machine learning and data analytics, to better measure ESG metrics and help achieve sustainability goals in their business practices and supply chains. For example, an airline might want to optimize the fuel burn for its fleet, or a technology company might want to create a data model to help report and reduce its emissions.
Another example of leveraging analytics in achieving sustainability goals that was highlighted at the conference was the use of technology that allows companies to collect data from different parts of the supply chain and track the movement of goods. This traceability and visibility help companies reduce their association with controversial activities, including scope 3 greenhouse gas emissions (indirect emissions in the value chain of an organization), human rights violations or illegal deforestation. Investors, including venture capital and private equity firms, are likely to pay a premium for companies whose software can deliver transparency and capture value.
“With better data, businesses can set meaningful sustainability targets, monitor progress and continuously improve their performance,” said Jessica Alsford, Morgan Stanley Chief Sustainability Officer and CEO of the Institute for Sustainable Investing. “For a firm like Morgan Stanley, that is important for both our own operations and for helping our clients identify opportunities for innovation and impact.”
One area of opportunity that conference participants spoke about was the 2022 U.S. Inflation Reduction Act, which provides tax credits for producing renewable energy, as well as funding for investments in energy efficiency and research and development that can help reduce greenhouse gas emissions. Many of the panelists agreed that the IRA creates an environment to capitalize on new financial opportunities, but some speakers noted significant bottlenecks, including the time it takes to connect renewable energy sources to the grid for consumption. Integrating clean energy into the grid effectively will require large-scale fixes, such as building the massive amount of power lines required to transport renewable energy from where it is produced to where it will be used, to meet the increasing demand for more electricity as part of the global energy mix.
The Summit speakers also referenced the growing number of sustainability reporting regulations since 2021,1 and how the improving quality of ESG disclosures, whether voluntary or government-mandated, can help companies attract investments and reduce risk. Some panelists likened the current state of sustainability-disclosures regulation to the stock market right before the Securities Act of 1933, which was created to protect investors and ensure more transparency in financial statements after the stock market crash of 1929. They underscored the ongoing challenge of accurately tracking and disclosing scope 3 greenhouse gas emissions, which account for 70% of the average company’s carbon footprint,2 and that working toward reliable and internationally accepted standards for scope 3 carbon accounting methodology will be crucial to achieving net-zero.
Social Issues at the Forefront of Corporate Strategies
In addition to identifying opportunities from the energy transition, Summit panelists underscored corporates’ focus on diversity, equity and inclusion (DEI) practices in the pursuit of better business outcomes. In healthcare, for example, some pharmaceutical companies are seeking to increase diversity in clinical trials to help improve drug development and efficacy for a wider pool of people, while some education companies promote equity for underrepresented minorities in healthcare professions to address social determinants of health.
Beyond healthcare diversity, equitable housing was another important DEI topic at the Summit. One of the biggest obstacles facing potential homeowners is insufficient credit, and various players in the housing ecosystem are working to provide solutions to this, by improving access to mortgage approvals, for instance. New programs are helping renters build credit and improve credit scores by facilitating multifamily borrowers to report timely rent payments, which is not typically factored into establishing credit history.