Even though “Sustainability” has faced budget cuts, ESG did not suffer the same fate..in fact, increased budget allocations and investment for ESG is the trend.
Investing in ESG has its own benefits for the organization.
McKinsey says:
“The overwhelming weight of accumulated research finds that companies that pay attention to environmental, social, and governance concerns do not experience a drag on value creation—in fact, quite the opposite…A strong ESG proposition correlates with higher equity returns..”-(www.mckinsey.com)
Apart from corporate budgets, even investment decisions that are pro-ESG gets ‘priority boarding’ access.!
“Businesses increasingly are coming under pressure from investors, lawmakers and regulators who demand more details on their spending plans and the progress they are making to achieve their environmental, social and governance goals… As a result, car manufacturers such as General Motors Co. and Ford Motor Co. are boosting investments in electric vehicles to reduce emissions… Those viewed as investing too little are already paying a price. Ratings firms in recent months have either cut the credit outlooks of oil-and-gas companies or outright downgraded them, citing risks associated with the transition to green power and other factors.”-(Companies Spend Big on ESG Investments, Hoping for Long-Term Payoff-By Kristin Broughton and Mark Maurer-June 14, 2021)
“Portfolio managers that embrace sustainability investment factors have significantly outperformed their peers.” (“Why ESG investing is on the rise” – www.rbcwealthmanagement.com)
And, Bloomberg:
“The market for ESG-focused exchange-traded funds has been among the world’s hottest investment areas for more than two years now. About $120 billion flowed into these funds in 2021 as investors increase their bets on companies deemed to have the highest environmental, social and governance credentials..” (Tim Quinson on December 1, 2021 at 4:30 PM on www.bloomberg.com/news “The ESG Market Is Controlled by a Few Big Investors“)
According to McKinsey, investing in ESG has several distinct benefits;
When expanding into new markets for their growth, corporates are screened for their ESG performance. If the brand has ‘done its part’ on ESG, they have a better chance of entering new markets. Secondly, due to optimization of resource efficiency (especially manufacturers), ESG can save costs in raw material and energy usage, thus lowering production costs. Thirdly, a corporate that has ESG on-board, has regulatory and government support. This is especially important since, according to McKinsey, one third of corporate profits could be targeted by regulators. Fourthly, the corporate bonding with ESG helps in better human resources. Better human talent / HR is attracted by the ESG compliant corporates.
Finally, an ESG oriented corporate can diversify investments more strategically; it has the opportunity to divert investments to more ESG based output, that the consumers demand increasingly.
Interestingly, there are other real gains from ESG beyond these advantages.
