The ESG movement has grown massively over the last few years, with a focus on environmental and social issues skyrocketing up the global agenda.
The focus around it hasn’t always been positive, however. For example, US states such as Idaho, West Virginia and Florida have all deterred state and school pension funds from investing in ESG products or businesses.
With some embracing ESG and others attempting to banish it, the question many in the industry are asking is: is ESG a fad or the future?
In a recent post, RegTech firm Diligent explained why it believed ESG was here to stay, and why it should be an important part of any company’s strategy going forward.
The company cited a 2019 Harvard Business Review survey that found ESG issues were ‘almost universally top of mind’ for the investment and asset management sector. Since then, not much has changed – with the industry jumping further into support for ESG.
Following the Ukraine invasion, 80% of 27 polled wealth managers said they expected interest in ESG among their clients to climb in the year ahead.
Diligent commented, “Capital sources of all types are watching ESG, and it’s not just a company’s carbon footprint they’re looking at — it’s the workforce as well. The business world increasingly recognizes that more diverse thinking generates better decisions, both in leadership and throughout the organization.
“Talent attraction and retention is easier if you’re an organization with a strong ESG track record. Meanwhile, amid the Great Resignation (which is still a reality for many businesses and industries), companies with poor ESG performance may find themselves blacklisted.”
The company noted that many investors and buyers rely on scores and ratings to signpost wise choices, adding that a better ESG score can translate to about a 10% lower cost of capital.
ESG is also a key area for activism. Diligent highlighted a case in Australia, where Mike Cannon-Brookes launched a shareholder campaign that blocked AGL Energy from spinning off three coal-fired plants, which would have left them operational into the 2040s.
In another case, when Carl Icahn acquired shares of McDonalds, he launched a campaign to push the firm to improve conditions for the animals used in its products.
Diligent concluded, “If ESG has become a waning fad, these activists, investors and regulators certainly haven’t gotten the memo. To the contrary, they realize that environmental, social and governance issues matter — not just for the world but to the bottom line. And they’re staying the course on ESG, even as frameworks evolve and climate action and the geopolitical landscape remain complicated.
“Companies would be wise to follow suit. There will always be contrarian views about ESG, particularly from those with vested interests in areas such as fossil fuels. There will always be room for discussion and improvement. Yet ESG as a business and board imperative is here to stay.”
Members of the US Republican Party recently called on the nation’s largest banks to stop ‘inappropriately’ taking liberal stances on social and cultural issues.
Read the full post here.