Oxford recently conducted a study that identified that investors are more and more inclined to consider sustainability when investing. This parallels the findings from the recent EY survey which indicated that many senior investors use “non financial performance to draw conclusions on value…since it’s a sign of operational excellence” and that ESG (environmental, social and governmental) factors have “real and quantifiable impact.”
“[There is] a disconnect between investors who see ESG as having real and quantifiable financial impacts and companies that do not see ESG risks as core to their business.” – Matthew Nelson, Global and Asia-Pacific Climate Change and Sustainability Services Leader for EY.
Environmental, social and governmental (ESG) factors are currently the preferred way to measure sustainability in businesses. However, there are not nearly enough easy-to-understand and apparent ways for investors to make sense of sustainability in the investing market. In order to counter this, the Oxford study identified 5 areas which will help incorporate ESG into reporting:
- Accountability
- Engagement
- Education
- Access to relevant data
- Longer time horizons
“Given there is now evidence that sustainable companies outperform their peers, investors are seeking information that provides the confidence that management and the boards of investees are thinking long term. They want board-reviewed strategies laid out each year and they want a third-party oversight. We know that in the absence of clear, consistent and verifiable data, investors are taking matters into their own hands — some are starting to underweight these companies in their portfolios.” – Matthew Nelson
I think that as investors become more and more interested in learning about ESG factors, it is important that companies and evaluators meet them halfway. A universal, easy-to-understand, verifiable, and applicable measurement system should be made standard. If companies are more transparent about their efforts and operations, consumers and investors will be able to be more deliberate in their decision-making. I think this will actively work in the favour of companies that innovate in these areas.
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