ESG (Environmental, social & corporate governance) is Supercharging The Growth in Responsible Investment.
ESG (Environmental, social & corporate governance) is Supercharging The Growth in Responsible Investment
ESG issues in organisations were first noted inside the 2006 United Nation’s Principles for Responsible Investment (PRI) file. ESG criteria were, for the first time, required to be incorporated inside the financial reviews of corporations.
In those early days, large corporations had incorporated Corporate Social Responsibility (CSR) policies and many of these, especially manufacturing companies, became early adopters of ESG.
This was because it was easier to identify environmental issues such as pollution of air and water and carbon footprint. However Social risks to society and Governance issues became equally important.
As the measurement and reporting of ESG in companies became more common and more sophisticated, it became apparent that the white-collar industries such as banking, insurance and investment management also had the potential for significant risks, particularly in Social and Governance areas.
The Importance of ESG For Investors
ESG embodies 3 vital factors providing a barometer as to the impact, sustainability and moral effect of a company. ESG factors, whilst they may be non-monetary, have a significant effect on the longer-term risk and ultimate return on investments. ESG is increasingly incorporated in compliance, risk mitigation and investment strategies.
- Environmental risks created by business activities can have a negative consequence on the quality of air, land, water, ecosystems, and human health
- Social dangers look at the effect that corporations will have on society. Key areas at risk are labour relations, health and safety and human rights.
- Governance risks are a consequence of the way corporations are run. Corporate risk management and excessive executive compensation. Increasing diversity and accountability of the board. Protecting shareholders and their rights, and reporting and disclosing information.
Companies that employ an ESG strategy to address and measure and control the impacts of these three factors are more conscientious, far less unstable and are much more likely to be successful in the long run
The Benefits of Employing an ESG Strategy
ESG standards offer another layer of due diligence that is in the best interest of shareholders and investors. ESG exposes unsustainable corporations with outdated practices and harmful impacts. It, therefore, minimises the danger for investors as they put money into more responsible companies with a greater chance of succeeding in the long term.
Responsible investors can make value assessments by using ESG criteria as a framework to screen investments or verify risks in investment choices.
There are many advantages accruing to those corporations which invest in the improvement and implementation of strong ESG strategies. A robust ESG proposition can create significant value across the organisation. This value comes from:
- Sustainable practices appeal to more customers. Operational expenses are reduced through, lower power and water usage.
- Sustainable practices create greater societal credibility. Better skills are attracted and employee contentment will prevail.
- Sustainable practices can lead to better financial support by creating access to subsidies, grants and even more favourable borrowing arrangements.
Firms are already recognising the economic outcomes of failing to engage with sustainability as many jurisdictions have introduced rules that have generated carbon taxes. The banking and financial sectors now consider ESG policies in their investment decision making.
Investors are more and more considering ESG performance to help control investment risks. Increasingly, performance measuring metrics are being developed to show a company’s success or otherwise in mitigating risks and generating sustainable long-term financial rewards.
Businesses that have successfully managed to implement ESG and sustainability strategies are liable to outperform leading global competitors. ESG is rapidly becoming the main focus of companies across all continents and all sectors as they face up to the post-Covid landscape.
In reality, many companies will need to bring in specialist staff to meet the opportunity presented by ESG - this can be a major challenge.
Streamline is an innovative recruitment partner in Insurance, Wealth Management and Financial Technology. We unearth and deliver the spectrum of talent that enables clients to deliver IT and Business Change, Transformation and Compliance.
Specialist consultants with vertical market expertise ensure a first-class delivery, service and experience for both clients and candidates. To discuss your recruitment strategy, please call or email Streamline on 01727 794 200, email: firstname.lastname@example.org
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