ESG ratings, the rise of Responsible Investment and how it affects your company – What CEOs need to know

ESG ratings, responsible investment, CEO’s , financial investment, stock market, investors, investment opportunity, corporate governance, social welfare, environmental growth, SRI, environmental impact, social impact, corporate governance impact, financial performance, business risk, climate change, growth and prosperity, CSE research, CSRhub, Bloomberg, global socially responsible investment, Global Sustainable Investment Alliance, ESG rankings, The Center for Sustainability and Excellence, Sustainability (ESG) Leadership Workshop for C-suite Executives, NYC, Nikos Avlonas, CMI, GRI

Return on financial investment and stock market indices are not the only factors considered by investors when they assess and decide on a possible investment opportunity. Issues related to corporate governance, social welfare and environmental growth are crucial for investors.  This is why assets for socially responsible investments have increased significantly, from $8.7 trillion to $12trillion between  2016-18 in North America alone (US SIF).

Why are these issues so important for Investors and CEOs? A socially responsible investment (SRI) takes into consideration the Environmental, Social and corporate Governance impacts (ESG). Investors look for SRI opportunities not only because good performance on a social-environmental-governance level can lead to better financial performance, but also because it can mitigate business risk. For example, CEOs of global companies and organizations are complying with the Paris Agreement on climate change.

The Harvard Business Review reports that socially responsible companies present bigger profits and better share return than their competitors, while a long-term strategy incorporating sustainability practices seems to ensure their growth and prosperity. Moreover, companies that treat their employees well and make a priority of addressing employee issues are less likely to face damaging lawsuits and benefit from more productive employees day-to-day. That’s good for the bottom line and for investors.

The connection between financial performance and sustainability strategies and reporting has been analysed in recent CSE research.  Of companies with the highest Sustainability scores (as ranked by CSRHub), 73% improved financial results, as expressed by change in revenues 2016-2017.  Sustainability Reporting and comprehensive strategies regarding community, employees, governance and environment correlate to a positive impact on profitability.

This is not just a trend; it is a new business and investment strategy. While ESG investing has become more popular over the last 20 years, in the millennial generation, it’s almost a requirement.

According to Bloomberg, about 84% of millennials are interested in socially responsible investing, and that figure is not expected to change as the generation ages, suggesting that demand for sustainable products will only increase.

Key trends and numbers, as recently published on Bloomberg:

  • Global socially responsible investments grew by 34% to $30.7 trillion over the past 2 years.
  • Europe remains the biggest region for sustainable investors with about $14 trillion devoted to these strategies, up 11% from 2016, according to the biennial report from the Global Sustainable Investment Alliance.
  • Smaller markets, such as Japan, saw the biggest jump, which now represents 18% of the professionally managed money in the market, up from just 3% two years ago.
  • Bloomberg also reports that money managers around the globe find clients increasingly asking for sustainable strategies with climate change a leading issue for investors this year.
  • Investors who integrate environment, social and governance principles into their portfolios, now represent about $17.5 trillion, up 69%from 2016. Assets that focus on corporate engagement and shareholder activism around environmental and social issues rose to $9.8 trillion in 2018, up from $8.4 trillion.

Want to learn how you can leverage sustainability efforts to improve your ESG rankings?  Attend the Center for Sustainability and Excellence (CSE) Sustainability (ESG) Leadership Workshop for C-Suite Executives, September 30-October 1, 2019, in New York.

The CSE Leadership Workshop is a C-Suite gathering of key corporate influencers working together to motivate employees and supply chains, to turn competition into collaboration and to influence policy on the sustainability concerns most impacting social, environmental, workplace and marketplace arenas.  Participants will develop strategy, hone techniques and actively design the future of corporate sustainability.  The workshop incorporates exclusive training, facilitated discussions and intimate conversations to culminate in thought leadership and actionable steps for an integrated approach toward addressing the most pressing issues of our time.

CSE specializes in global sustainability consulting, research and training. Clients include governments, NGOs and Fortune 500 companies. CSE is accredited by CMI and is a GRI organizational stakeholder.

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