INGENIEUR
INGENIEUR
with the specific and sole remit of generating alpha . Furthermore , investors largely agree that investment returns and sustainable impact go hand in hand .
As investors become more knowledgeable and familiar with ESG , they are becoming more cognisant of the challenges . Data challenges continue to be a critical issue that manifests throughout the investment process . Difficulties with the quality and accessibility of data and inconsistent ratings are hampering the ability of investors to adopt , incorporate and implement ESG .
These issues also present themselves to fixed-income investors who identify a lack of standardisation across ESG bond ratings as the top barrier .
Such difficulties are compounded by the fact that investors face an information overload as they swim against a tidal wave of ESG data .
It is therefore essential that investors seek help from active managers who possess the specific tools , skill sets and resources to address these challenges . Using proprietary research and fundamental analysis , active managers can bypass the problems created by superficial scoring systems and a lack of consistent and reliable data .
The support of asset managers is paramount as the knowledge paradox plays out — the more investors know about ESG , the more they realise what they don ’ t know and the more help they need . Indeed , a third of investors say on-going ESG education and training from their employer would help with ESG analysis and implementation . This skills gap presents an opportunity for asset managers to forge closer ties with investors through the provision of educational materials and resources .
Five ways that ESG creates value – Mckinsey
Business is deeply intertwined with environmental , social , and governance ( ESG ) concerns . It makes sense , therefore , that a strong ESG proposition can create value .
A framework for understanding the five key ways it can do so is as follows : a ) The “ E ” in ESG , environmental criteria , includes the energy your company takes in and the waste it discharges , the resources it needs , and the consequences for living beings as a result . Not least , E encompasses carbon emissions and climate change . Every company uses energy and resources ; every company affects and is affected by , the environment . b ) S — social criteria — addresses the relationships your company has and the reputation it fosters with people and institutions in the communities where you do business . S includes labour relations and diversity and inclusion . Every company operates within a broader , diverse society . c ) G — governance — is the internal system of practices , controls , and procedures your company adopts to govern itself , make effective decisions , comply with the law , and meet the needs of external stakeholders . Every company , which is itself a legal creation , requires governance .
ESG is an inextricable part of doing business . Its individual elements are themselves intertwined . For example , the social criteria overlaps with the environmental criteria and governance when companies seek to comply with environmental laws and broader concerns about sustainability . The focus is mostly on environmental and social criteria , but , as every leader knows , governance can never be hermetically separate . Indeed , excelling in governance calls for mastering not just the letter of laws but also their spirit , such as getting in front of violations before they occur , or ensuring transparency and dialogue with regulators instead of formalistically submitting a report and letting the results speak for themselves .
Five links to value creation These five links are a way to think of ESG systematically , not an assurance that each link will apply , or apply to the same degree , in every instance . Some are more likely to arise in certain industries or sectors ; others will be more frequent in given geographies . Still , all five should be considered regardless of a company ’ s business model or location . The potential for value creation is too great to leave any of them unexplored . a ) Top-line growth : A strong ESG proposition helps companies tap new markets and expand into existing ones . When governing
26 VOL 97 JANUARY - MARCH 2024