Environmental, Social & Governance (ESG) Considerations for Investors
The majority of today’s institutional and savvy individual investors no longer focus solely on the potential returns on investments. Investors start to realise that projection returns are just that – projections; and these projections can be manipulated by showing whatever numbers they want to the public.
Investors’ concerns are shifting towards other indicators that provide a clearer picture on how a company intends to achieve their stated goals. Consequently, Environmental, Social and Governance (ESG) has emerged as one of the factors that investors will take into account when making investment decisions.
Generally, ESG investing is a form of investing that is commonly referred to as “sustainable investing”. Various ESG approaches companies take to drive their businesses can be an accurate and measurable methodology to track their accomplishments and milestones. The ESG sustainability report is a tool that helps investors to assess the ESG performance of a company and how it can impact their long-term financial returns.
The top consideration of investors is how the company can make the best use of the funds to mitigate the sustainability risks and create values that last. As such, ESG requirements are gaining prominence among various parties and will soon become mainstream for investors and asset managers.
The Effect of the Covid-19 Pandemic on Investors
COVID-19 has brought about new challenges and unprecedented impacts to all the major industries. It has changed the business landscape and triggered contradictory reactions to the importance of ESG among investors and companies.
During this pandemic, there is no slowdown in ESG investing and it is experiencing a rising demand by investors. A great emphasis on regulating and controlling the impacts of the COVID-19 takes ESG to the next level. In fact, many companies see the needs to make significant changes to their operations. Companies that are pioneers in ESG with well-established internal business continuity processes found themselves in a better position to adapt to change during Covid-19.
Pending a summary report from Morningstar about how ESG focused companies are performing well during this pandemic.
A Major Consideration – Social Issues
The significance of social concerns among the other ESG considerations is now coming into the picture. Companies are aiming to stand out by embedding ESG in their business strategies with the help from both internal stakeholders as well as ESG industry consultants like Alder.
Before the pandemic, issues related to the environment and governance were observed as the biggest concerns. However, social issues like workforce management, employee wellbeing, and data privacy are now surpassing the other considerations and emerged as the primary concern of investors.
Top Priority – Climate Change
Despite the shifting focus, climate change remains as the top priority of various stakeholders. The majority of investors tend to pay attention on climate change issues and perceive it as a significant risk factor that can have adverse impacts on their investments.
Some of their major considerations include:
a) Investors are now looking for better respectful treatment and ESG consultancy with the employees as intelligible messaging and responsible behaviour will influence reputational investment.
b) Investors want to articulate a plea for more true, consistent, and comprehensive quantitative ESG metrics as well as acknowledged standards and systems against which to compare.
c) Investors want to recognise the important difficulties imitated by working for the long-term under the crisis if pandemic.
Implementing ESG Practices
Investors are adopting a positive attitude towards the implementation of ESG practices due to the recognition that ESG can lead to a material impact on their investments. This can offer them an immense benefit while meeting all the ESG practical guidelines. The tendency for companies that perform well on ESG scorecards running in tandem with their financial performance is no longer a secret. It will definitely be an accurate gauge to the long term value of the firm.
Conclusion
ESG considerations for investors have demonstrated the need of implementing policies and practices that can tackle ESG-related concerns. We at Alder Corporate Services provide end-to-end compliance assessments and relevant regulatory updates including Sustainability and Environmental, Social and Corporate Governance (ESG) reporting and sustainability reports to complement your company’s financial statements for a holistic view.