How Important is the Environment, Social and Governance (ESG) Aspects to Existing Investment Trends?
It is not easy to know when sustainable and ethical investment approaches because an important factor for asset managers, investors and shareholders. A shift is happening on the global investment focus to investment managers, investors and shareholders. We are seeing wealth being transferred to millennials, an increase in risks and costs, environmental disasters as well as improved operation performances through manageable practices.
The essence of environmental, social and governance (ESG) factors in making decisions for investments is seen by a large percentage of executives as significantly vital to their decisions on investments. The only problem is that about 60% of organizations have a strategy for sustainability and only 25% have an understandable business case for continuity.
In ESG, there’s a range of results on the values of returns and risks of an venture. Such issues are commonly around reputational or strategic risks, direct impacts on finances, business ethics, and regulation changes. The risks include environmental, clean technology, pollution, climate change, waste and natural resources. Human resources, human rights, local community, and health and safety are the social risks included. The governance factors has risks such as 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. Multinationals, listed businesses, large corporates, healthcare, agribusinesses, supply chain, manufacturers, suppliers, and small to medium businesses are the markets that will be affected. The drive in our economy is capital flow and investments, the complex ecosystems of the worldwide economy knows the value of observing ESG strategies where funds should be invested.
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. It is challenging to enumerate environmental risks because it is not easy to monetize it but the key driving force is changing over to an economy of low carbon. 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 require evaluation of the immaterial traits of a business which cannot be detected on balance sheets. Sustainable supply chains, community engagements, health and safety, customer relations, employee productivity and culture are some of these traits. The bottom line for private and listed businesses is the opportunity to improve ESG performance.