WHY ESG INVESTING IS HERE TO STAY
Sam Sutcliffe, senior consultant at Investis Digital explains why ESG investing is here to stay and what this means for businesses looking to communicate a compelling ESG narrative.
During the Covid-19 pandemic, we saw a rise in purpose-driven investing – or investing in public businesses with strong environmental, social, and governance (ESG) track records.
A survey conducted by the Harvard Law School Forum on Corporate Governance revealed a heightened interest in ESG-driven investing during 2020.
JPMorgan reported that the COVID-19 crisis is accelerating the trend for a more sustainable approach to investing.
E&Y said that diversity and inclusion (D&I) has attracted increased interest from 61 percent of its wealth industry clients over the past year, and half of them want to see wealth firms demonstrate an active commitment to D&I in their operations.
Now that the world is emerging from the pandemic -- albeit faster in some regions than others, it’s reasonable to ask: will ESG investing continue to be a priority?
The answer is a resounding “yes” and here are some reasons why. The biggest transfer of asset ownership in history is under way, with wealth moving to a younger generation of digital-native investors.
Cerulli Associates estimates that over the next 25 years, Baby Boomers will transfer $68 trillion to their Gen X and Millennial families in the United States alone. Millennials are the largest generation in the United States and have been motivated by purpose-driven investing for the past decade, long before the pandemic hit. And now ESG investing has caught on with multiple generations, including Gen Z.
Influential investing institutions have responded. For example, in 2020, powerful investment firm BlackRock famously announced it was divesting from fossil fuels to greener investments amid a climate crisis.
Public firms around the world have been embracing ESG as central priority long before the pandemic, and there is no slowing down. Businesses see the value of making ESG a critical priority. For years, that commitment translated to a focus on sustainability. Now they’re more committed to diversity and inclusion especially as they seek to align themselves with investors, consumers, and employees who demand that businesses take a stronger lead in making society more inclusive.
ESG as an investing priority reflects a broader societal focus on holding businesses accountable for improving the world. The galvanizing events of 2020 – namely, the pandemic and a global outcry for racial justice did not trigger ESG investing. They accelerated a trend that was well on its way to dominating the corporate agenda.
Responding to this agenda is not without its challenges. ESG is a far-reaching topic, and different investors define and prioritize ESG differently. Some care more about environmental issues, others more about social issues. Communications executives (who includes investor relations and corporate comms) must understand each investor’s unique needs and deliver against them.
Another challenge for businesses is articulating their ESG narrative effectively – which means telling a compelling story and connecting that story to business performance. After all, people expect their investments to deliver a return.
Businesses need to articulate a strong ESG narrative on their corporate websites. And most of them do. According to the Investis Digital Connect.IQ ranking of the top 100 corporate websites around the world, 87 percent have a section dedicated to ESG/corporate social responsibility. That’s a strong foundation on which to build.
They must connect their ESG narrative to a strong investment thesis. This is where businesses have room to grow. Connecting a commitment to ESG to a long-term growth strategy that delivers measurable returns is the challenge of 2021 and beyond. And we know it can be done. Many ESG-focused funds outperformed the stock market during the pandemic. If your businesses can make a connection between ESG and your stock performance, tell that story – loudly and often.
Your business may never again have such a golden opportunity to articulate an ESG narrative that drives business performance as this is a time when the entire investing world is watching.
As noted, the ESG investing movement is part of a broader shift in businesses toward gaining trust with consumers, investors, and employees. We discuss this shift and strategies for how brands can build trust and relevancy in our Building Trust through the 4Rs report. This thought leadership offers companies a blueprint to build trust by connecting with the personal values of job seekers, investors, and consumers.