ESG: A Growing Interest for Business Investors

Many organizations are strategically choosing to become “greener” and socially responsible in their daily operations. Sustainability initiatives are serving to improve operational efficiency and are increasingly informing the purchasing decisions of customers and investors alike.  Where competition between businesses is evident, companies are taking the necessary steps to stay ahead of their peers. Being environmentally sustainable and socially responsible is increasingly recognized as an essential element of corporate strategy, especially as regulations increase globally.

As a result, many investors examine various factors related to their investment portfolio, before deciding where to position their capital. They look at the financial performance of a company and increasingly inquire about corporate strategy related to environmental concerns, social issues and governance. These initiatives are commonly grouped together as a categorical measure related to sustainability and ethics called Environmental, Social and corporate Governance (ESG). Many investors consider how ESG affects their overall investment portfolio and how it creates long-term value for both corporate investors and society at large.

According to a study by Global Sustainable Investment Alliance (GSIA) and reported by Northern Trust, there has been a marked increase in the influence of ESG on business and investments.  Of the total global assets they surveyed, 22% (worth $13.6 trillion) involve ESG standards in their operations. Moreover, it is increasingly important that customers, employees and investors in the business community perceive companies as ethical, sustainable and committed to planning for long-term growth instead of just quarterly profits. Included in Northern Trust’s report is a survey revealing that 44% of European institutions consider ESG factors in their investment approach. In Asia, 26% of the respondents accounted for ESG in their business practices.

Sustainable investing or responsible investing (RI) has been making waves in the investment sector. Part of the investors’ decision-making process for responsible investing is the incorporation of ESG factors in investment procedures. By analyzing a variety of ESG issues—climate change, globalization, human rights, social reform and relationships with various stakeholders—investors are able to streamline and optimize their approach to investing. With information becoming increasingly easier for investors to access through various information technologies, ESG will continue to play an important role in investing and in influencing the behavior of business organizations towards the pursuit of healthier bottom lines, both in the short-term and in the long-term.

Below are several ESG growth drivers in the investment industry:

1.       UN Principles for Responsible Investment (UN PRI)

The United Nations’ institutional endorsement of responsible investment has encouraged many businesses to adopt this standard as corporate doctrine. In July 2012, the number of signatories to the UN PRI reached 1,085 (worth $32 trillion in assets). These include both asset owners and investment managers, of which 94% are already practicing RI strategies.

2.       Universal (Asset) Owners

Investors are adopting the philosophy of Universal Ownership—the idea that investors, in spreading their assets to various markets, are long-term shareholders in individual enterprises, and the economy as a whole. By keeping in mind that returns on investment (ROI) rely on economic growth and the continued availability of resources, Universal Owners become more conscious of ESG in their investment strategies.

3.       Access to ESG and Data Information

There are many national regulations that require organizations to share their ESG performance. In addition, ESG research departments are being set up and funded to support the growing need for sustainable investment practices and solutions in businesses.

FirstCarbon Solutions helps companies keep up with the mercurial nature of the investment industry by offering expertise on sustainable business and environmental solutions. By providing the necessary solutions with which companies can reinvent themselves, FirstCarbon Solutions is a catalyst that serves to attract more investors. FirstCarbon Solutions enables organizations to integrate ESG in their business strategies and operations in a cost-efficient manner to help them deliver a positive ROI.

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