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Posted on January 9, 2020 By

Why Are Environment, Social and Governance (ESG) Factors Important to Today’s Investment Trends?

Nobody knows the point when sustainable and ethical investment strategies became vital considerations for asset managers, investors and shareholders. The global investment focus of investment managers, investors and shareholders is shifting. What is being seen is transfer of wealth to millennials, an increase in the costs and risks, disasters in the environment and enhanced management performances using practices that are controlled.

Senior executives agree that environmental, social and governance (ESG) factors are valuable to making decisions on investments. The only issue is that only 60% of firms have a management strategy with 25% having a business case that is clear for upholding.

In ESG, there’s a range of results on the values of returns and risks of an venture. Reputational or strategic risks, direct impacts on finances, business ethics, and regulation changes are some issues that can affect any investment. The risks include environmental, clean technology, pollution, climate change, waste and natural resources. On the social factor the risks included are human resources, human rights, local community, and health and safety. The risks involved in the governance factor are board and shareholder levels, employee conflict of interest, reporting, regulation, and compliance.

The changeover from approaches that are purely important to considering medium or long-term results for the decisions we make for our businesses on ESG will have an effect on the market. The effect will be on multinationals, listed businesses, large corporates, healthcare, agribusinesses, supply chain, manufacturers, suppliers, and small to medium businesses. Our economy is driven by capital flow and investments then the complicated ecosystem of the global economy knows the importance of maintaining ESG strategies in areas where funds are to be raised.

Some countries are yet to agree to the appreciating the ESG business policy as they deem it not cost effective. Investing in ESG risk reduction approaches is reduced and reporting on ESG is not considered vital for listed companies.
Some investments can benefit more than others on the variation of environmental results on business functions. Environmental risks can be quantified but with lots of challenges when monetizing it but changing to an economy of low carbon is the main driving force. A low carbon economy needs investing in enhancing effeciencies in operations of water, waste and energy through the use of clean technologies.

Social risks and impacts need analyzing of intangible characteristics of an investment that cannot be seen on balance sheets. The characteristics are sustainable supply chains, community engagements, health and safety, customer relations, employee productivity and culture. The chance to enhance ESG performance is the bottom line for private and listed business.

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