Reflections on COP21: Investors Capitalize on ESG Reporting

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The gap between Environmental, Social, and Governance (ESG) issues and market or regulator reaction is narrowing, following the implications of the Paris agreement last year, which is having a wider impact.

France, for example, has showed its commitment to transitioning to a low carbon economy by passing a green energy law. It asserts that asset owners, fund managers, and insurers must report on how they integrate ESG into their investment processes, outline greenhouse gas (GHG) emissions from their investments and actively contribute to the financing of a low carbon economy.

Since the ‘deepwater’ Horizon disaster and Volkswagen scandal, investors are increasingly incorporating ESG data as a tool when considering the long-term impact of their investments. Improved risk management has been a key driver for these asset owners. To prove this, ESG indices such as the MSCI ACWI ESG Index* outperformed their reference market cap weighted indices by 0.53% (through 1 March 2016) while the green bond market has been ignited by Apple issuing $1.5 billion bonds dedicated to financing clean energy projects.

This reflects a widening trend of traditional investors keen to incorporate ESG factors into their investment decisions; other investors and corporations are already following the trend to incorporate ESG into their business practices.

A recent article by By D. Gelles in the New York Times reflects on how investors integrate Environmental, Social, and Governance factors into mainstream investment decisions.  “Sustainability” and “Responsible Investment” are such broadly defined topics that many investors now create their own search tools to make decisions.

Perhaps, the fact that many investors are still challenged by data consistency and its trustworthiness in understanding risk and returns has influenced this trend.

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