The past ten years has seen an explosion of interest from investors in environmental, social, and governance (ESG) issues when it comes to their investment decision-making. Now, more than ever, the sustainability performance of corporates is under scrutiny, a situation that has made business execs sit up and pay attention, responding to investor demands with renewed commitments and improved disclosure of non-financial issues.
More and more fund managers are putting ESG investing at the heart of their stock-picking strategy, favouring companies with a sustainable, long-term strategy. The Japanese government’s $1.3 trillion pension investment fund, for example, applies ESG to more of its assets than ever before, all based on low carbon outcomes.
Mounting evidence suggests companies have been right to respond positively. New research by investment analysts MSCI has found “empirical evidence” that strong ESG performance translates to greater financial returns and lower risks.
Now, this interest in the ESG performance is going further, focusing not only on what goes on within the boundaries of a company’s own operations but also the efforts being made to ensure supply chain impact and risk is minimised.
Here’s four developments that point to a growing awareness of ESG issues in supply chains among the investor community.
- PRI calling on investors put pressure on companies over supply chain ESG risk
New guidance from Principles for Responsible Investment (PRI) was warmly welcomed for good reason. It recognises that considering ESG risk in the supply chain can be daunting for most companies, particularly where they lack the capacity to manage supply chains, transparency and disclosure effectively.
The guide offers some initial steps investors can take to assess and manage supply chain risk, concluding that investors have the power to push supply chain risk management up the corporate agenda.
- Verisk Maplecroft report highlights threat of climate risks
Extreme weather events will become more frequent and more powerful in the coming years posing a more significant threat to the bottom of line of companies most exposed to changes in our climate.
That was the key finding of Verisk Maplecroft’s latest Environmental Risk Outlook report which predicts asset owners and fund managers increasing their demands for more information on climate risks companies are exposed to and how they plan to deal with them.
- ING’s hefty fund to support start-ups
With investors fearing that the next crash will almost certainly be climate-related, the Dutch Bank ING has launched a €100 million Sustainable Investments fund to help start-ups and those with innovative new business models scale up their ideas to particularly tackle energy, water and resource efficiency.
To be invested in the next three to four years, the fund is designed to support its clients who are proactively making changes in their business models to adapt to a more sustainable future.
- ESG-linked investments to balloon in emerging markets
ESG investment in countries like India are still fairly niche. However, home to many smallholders operating within large complex supply chains for the world’s biggest companies, that is changing.
The Indian government has already published National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business and the majority of large listed companies now disclose sustainability information. Right now the size of ESG linked investments in India is around $30 billion. But that is set to jump to $240 billion in the next ten years, according to cKinetics.