ESG: Compliance cost or investment opportunity

Environmental, Social, and Governance (ESG) must be seen as an astonishing success story in many aspects; in a short period of time, it went from being a specialised subject to becoming a corporate buzzword that now rules business agendas all over the world.

Recent research has shown that investors all across the world are embracing ESG investing in significant numbers. It demonstrates unequivocally that ESG is now significantly influencing economies around the world, accelerating the transition to renewable energy, resilient infrastructure, and social equity.

ESG is more than a list of admirable principles. It involves creating a clear, practical, and efficient action plan that produces tangible results. Because of this, shareholders and all other interested parties are pushing businesses to be more transparent, disclose more information, and demonstrate socially responsible leadership. Due to this, the Securities and Exchange Commission (SEC) of the United States (SEC) has finalised its climate risk disclosure regulations, the European Union has released its benchmarks and disclosures, and the Securities and Exchange Board of India (SEBI) has mandated that the Business Responsibility and Sustainability Report (BRSR) be applied to the top 1,000 listed entities (by market capitalization).

ESG is a rising movement that gives stakeholders first priority in business decisions. Simply said, ESG more fully incorporates the idea of doing good for society into an enterprise than CSR does. It recognises that companies have responsibilities and are required to show how they contribute to social and environmental well-being. This indicates that companies need to report on their commitments and goals on a regular basis. Due to this, there will likely be a significant increase in investor demand for sustainable investment vehicles that comply with ESG.

ESG

By 2026, ESG-focused assets under management (AUM) are expected to more than double to USD 10.5 trillion in the United States, grow by 53% to USD 19.6 trillion in Europe, and more than treble to USD 3.3 trillion in the Asia-Pacific (APAC) region, according to a PwC estimate. It also demonstrates how much money is being spent in Latin America, the Middle East, and Africa to integrate ESG into their industries.

Because bottom-up demand is driving the shift to sustainable investing, it is significant. In other words, investors from small individual investors to major institutions are allocating more of their portfolios to sustainable strategies as they aim to use their money to contribute to the creation of a more sustainable world. As a result, corporate transparency has significantly increased as a result of new data sources that offer improved understandings of how businesses are being conducted from an ESG perspective.

Sadly, some companies still view ESG as a compliance issue, hence they view the related costs as compliance costs. Yet, with more focus being placed on ESG by institutional and retail investors, it is more than just a cost of compliance and has real advantages for businesses and their stakeholders.

Large corporations have understood this and are gradually hiring sustainability experts to assist them set ESG goals. Key performance indicators (KPIs) and sustainable performance targets are established as part of the strategy to spur change and show that the organization is acting in accordance with its values and principles.

[2/28, 11:33] Mummy Ji: The understanding that ESG priorities are linked to how the public perceives the company’s brand has led to this development. Ignoring ESG issues could be detrimental in the long run. In contrast, a strong ESG offer may help a company’s reputation. ESG may open up new business prospects, starting with more stakeholder involvement in innovative company strategies.