The Rise Of Esg Investing In Global Markets – Linfen, June 26, 2018 — Photo taken on June 26, 2018 shows Hoku Falls on the Yellow River, … [+] located in northern China’s Shanxi and northwest China. It is located in the border area between the provinces of Shaanxi. (Xinhua/Liu Guiming)

Responsible investing is broadly defined as the integration of environmental, social and governance (ESG) factors into investment and decision-making processes. ESG factors cover many issues that are not normally part of financial analysis, but can be of financial importance. This can include how companies respond to climate change, how well they manage water, how well their health and safety policies work to protect against risks, how well they manage the supply of how are they. , how they treat their employees and if they have a company. A culture that builds trust and encourages innovation.

The Rise Of Esg Investing In Global Markets

The Rise Of Esg Investing In Global Markets

The term ESG was first coined in 2005 in an important study called “Who Wins”. Today, ESG investments are worth more than $20 trillion in AUM, or a quarter of all professionally managed assets worldwide, and its rapid growth has been driven by the Socially Responsible Investment (SRI) movement. This is a bit too long. But unlike SRI, which is based on moral and ethical values ​​and uses many negative screens, such as not investing in alcohol, tobacco or fireworks, ESG investments are based on the assumption that the factors of ESG matters in finance. In 2018, thousands of experts from around the world hold the job title “ESG Analyst” and ESG investments are the subject of news appearing on the financial pages of the world’s major newspapers. Many investors recognize that ESG information about companies is important to understanding the company’s mission, strategy and management values. Now, of course, it’s a big business. But what explains the boom in ESG investing and what does it mean for the future?

The Future Of Esg Investing

The story of ESG investments began in January 2004 when the former Secretary-General of the United Nations, Kofi Annan, wrote to the CEOs of over 50 major financial institutions, inviting them to join the UN Global Compact under support of the United Nations and participation in joint and international projects. financial support. Corporation (IFC) and the Swiss government. The aim of the project was to find ways to integrate ESG with financial markets. A year later, the project produced a report entitled “Who cares” with Ivo Noufel as author. The report argued that incorporating environmental, social and governance factors into financial markets makes business sense and leads to better outcomes for markets and a sustainable society. At the same time, UNEP/Fi has produced a so-called “New Field Report” which shows that ESG issues are related to the budget. These two reports formed the basis for the launch of the Principles of Responsible Investment (PRI) at the New York Stock Exchange in 2006 and the launch of the Sustainable Stock Exchange Initiative (SSEI) the following year.

Today, the UN-backed PRI is a successful international initiative with more than 1,600 members managing more than $70 trillion in assets. PRI’s role is to promote the integration of ESG into assessment and decision-making through thought leadership and the development of resources, guidance and commitment. The SSEI, sponsored by the UNCTAD based in Geneva, has been involved over the years in several consultations that provide guidance on ESG disclosures for listed companies or how to report ESG issues. However, despite its rapid rise in the mainstream, the rise of ESG investing has not been smooth or even.

Institutional investors were initially reluctant to embrace this concept, arguing that their fiduciary duty was limited to maximizing shareholder value regardless of environmental or social impacts, or issues governance issues such as corruption. Ironically, such arguments persist. But as evidence mounts that ESG issues have financial implications, the temperature has shifted. In many key markets, including the US and the EU, ESG integration is increasingly seen as part of a government mandate. For example, see Al Gore’s update on relative development.

Another major obstacle is the lack of information and tools needed to obtain fragmented and incomplete information. However, disclosure of ESG issues by companies has steadily improved since the launch of the Global Reporting Initiative (GRI) in 2000. Today, 80% of the world’s largest companies they use the GRI standards. Recently, the International Integrated Reporting Initiative (IIRC) and the US-based Sustainability Accounting Standards Board (SASB) have contributed to a sector-specific report and its development for investors. Overall, the market for ESG information has grown and the quality, while still imperfect, is improving all the time. And new technologies based on machine learning and big data can unlock valuable insights that already exist and provide easier ways to use ESG data in addition to traditional financial data.

How 2021 Became The Year Of Esg Investing

The steady growth of ESG investments accelerated around 2013 and 2014 when the first studies were published showing that better business performance is associated with better financial results. The work of experts such as George Seraphim, Bob Eccles and Ioannis Ioannis shows the importance of ESG information for assessing business risks, strategies and operational performance.

The idea that investors integrating environmental, social and corporate governance risks can improve returns is now spreading rapidly in financial markets on all continents. For example, in Europe, a large group of pension funds and insurers have started offering new business only to asset managers with ESG knowledge. The international investment community has developed various methods to better integrate ESG information, such as those described in the Practical Guide to ESG Integration for Equity Investments). Among the many ESG factors that are seen as important in finance are those related to climate change in particular. That’s because climate change is no longer a distant threat, but a present threat, with multi-billion dollar economic consequences. Many investor initiatives are already pushing to reduce carbon, and the Task Force on Climate Financial Disclosures (TCFD) has made a strong effort to improve risk appetite and thus decarbonization action.

Cynics may argue that responsible investing is just a technique. But a closer look at the forces behind this decision 15 years ago shows otherwise. First, technology and increasing transparency will always be there. Collecting and processing data will always be easier and cheaper. Smart algorithms will increasingly allow for better interpretation of non-traditional financial data, which seems to be doubling in volume every few years. Second, environmental change, especially climate change, will promote better management and low carbon practices with scientific certainty because natural resources will increase in value over time. And third, people everywhere are increasingly empowered by technology. ESG investing allows them to express their value and ensure that their savings and investments reflect their interests, without compromising returns.

The Rise Of Esg Investing In Global Markets

The rise of ESG investments can also be seen as a reflection of how markets and organizations are changing and how the concept of value is adapting to these changes. The biggest challenge for many companies is to adapt to the new environment that destroys smart, clean and healthy products and services, leaving behind the principles of the industrial age when pollution was cheap, work was the only point of cost, size and stretch. a dominant strategy. For investors, ESG factors are becoming more important than identifying companies that are well-positioned for the future and avoiding those that may weaken or fail. For individuals, ESG investments offer the opportunity to vote with their money. And for policymakers, it should embrace market-led development to ensure that the common good is not lost at any cost to short-term profit.

Esg Companies: Ibd’s 2022 Best 100 List

Today, ESG investing has reached a point where it can accelerate market change for the better. As companies and investors gain more influence and power, their actions and decisions shape the future. As long as the conditions of an open political framework based on international law are not further eroded, market-led change will act as a force for good on a large scale. Tanya is the Head of the Education and Assurance Department of the International Investment Management (IM). Practice of Deloitte & Touche LLP. He has 20 years of public accounting experience serving clients in the IM industry sectors: mutual funds, hedge funds and private equity, as well as investment advisors, hedge funds, family offices, broker-dealers , and has experience working in investment banking. . Tanya has expertise in accounting, financial reporting, financial instrument valuation, and operational and regulatory matters, including being an SEC securities law expert. As a thought leader in the IM industry, Tanya has led industry-specific presentations for Deloitte professionals, clients and industry groups, while authoring numerous articles. He previously worked in Deloitte’s Cayman Islands office with extensive experience in foreign finance and expertise in International Financial Reporting Standards (IFRS). Tanya represented Deloitte in the Investment Management Institute of American Certified Public Accountants


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