High quality ESG data and reporting are hard to come by
“ ESG integration ” is the systematic and explicit inclusion of environmental , social and governance performance data in an investor ’ s analysis and decision-making process . It provides a framework that helps us account for the externalities of a company or investment . And in turn , it gives us a more comprehensive picture of an investment ’ s real current and future value , and its risks . In this way , ESG factors are effectively our canary in the coal mine ; highlighting leading companies , and helping us identify the laggards .
Today , ESG integration is central to sustainable investment strategies as it ’ s a powerful tool to derisk portfolios and identify future performers , and thus , improve investment performance .
This makes intuitive sense when you consider the companies and management teams who are actively mitigating ESG risks and capturing ESG opportunities ; they are , generally speaking , the highest quality and most skilled teams across the board .
Many great management teams have always actively managed key ESG issues . Doing so is just good business and reduces corporate risk . For example , reducing your company ’ s carbon emissions not only helps mitigate climate change , it also reduces your cost base and your risk of future climate change-related litigation .
Other companies have simply chosen to ignore ESG performance or decided against disclosure , despite the overwhelming arguments in favour of doing so . For some , ESG has been regarded as more of a “ greenwashing ” communication issue , than a value-adding strategy .
As a result , high quality ESG data and reporting have been hard to come by . And , that which has been available is far from standardised , making it difficult to compare apples for apples , so to speak .
As investor interest in ESG has grown , however , so too has demand for data and ESG rated investments . So , we ’ re now seeing great improvements in the quality of reporting and global standards beginning to emerge . Consumer demand and the overwhelming evidence showing that strong ESG performance is linked to better investment results , has put management teams , Boards and financial markets on notice . ESG integration is here and it ’ s not going away any time soon .
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