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ESG: Separating reality from hype According to many news reports and blog postings, ESG (environmental, social and governance) performance is becoming the most important investor relations and corporate governance issue of our time. Or is it one of the most overhyped “flavors of the month” in a long time?
Consider these recent headlines and sound bites: BlackRock CEO Larry Fink has predicted that all investors will be using ESG metrics within five years. Almost daily we are seeing headlines such as: “Are ESG Ratings the New Credit Rating for Stock Prices?” and “Big Investors Push SEC to Standardize ESG Reporting for Companies.”
The reality is that many companies have been working increasingly hard to address the expectations of stakeholders such as employees, customers, the supply chain and communities. Investors and their advisers, especially in the U.S., seemed much less interested (although their growing focus on risk management, intangibles and long-term thinking were probably indicators of what was coming).
In just the last two years, investor focus on ESG has intensified, and here’s why:
Globally, there are more than 2,200 signatories (including many large companies and virtually all large investment firms) to the UN Principles for Responsible Investment. The group’s first principle is: “We will incorporate ESG issues into investment analysis and decision-making processes.” The reality is that ESG commitments and reporting are now mainstream factors. But don’t be drawn into the hype that there is one, best way to address those expectations.
Start your journey, think ahead and move forward to find your ESG communications “sweet spot.”