ESG (Environmental, Social & Government) criteria go beyond baseline performance. This acronym represents a call for companies to better their public image, and so better serve and represent everything and everyone they touch. stakeholders, employees, communities, consumers, and the environment. These criteria are essential for the investment environment, especially as the market skews towards younger demographics. Millennials, in particular, hold stock in how companies respond to ESG criteria, and their investment choices are consistently guided more by shared values. Thus, the importance for investment companies and funds to not just follow but embrace ESG criteria is absolutely paramount to survive and grow.
How can value be created from ESG criteria?
Following policy isn’t the only motivator for companies to invest in implementing ESG criteria. As stated above, proactivity in this arena can actually serve to create value and growth:
Attracting new customers through the launch of more sustainable products
Increased sustainability and efficiency of capital through investiture into sustainable projects and securities
Minimization of regulatory and legal issues while building trust and support from relevant governing bodies
More energy and capital can be relegated to recruiting and improving talent
Reducing overhead and expenses by minimizing consumption of hard utilities
The major challenges of sustainable investments
Although the introduction of sustainability and ESG criteria in investment decisions makes sense across the board, there are challenges to implementing these concepts on a wider scale:
Low visibility/abstract value on ESG investment returns
High urgency and expectation regarding regulation, with few specifically designed tools for proper implementation
Complexity and breadth of policy transformation, since ESG-centric policy change requires a high amount of vertical and horizontal synergy
Large amounts of subjective data, difficult to compare and without external criteria. In most cases, ESG criteria are analyzed internally within the company, without the supervision of an external agent and with standards that are not yet harmonized or generalized
At VASS, we are well aware of the urgent need to create and categorize sustainable products and solutions. That is why we created solutions such as our “One Single Vision[CM1] ” for economic sustainability, which aims to succinctly quantify the needs and returns of any company transitioning into a more ESG-friendly model.