The top priority for corporate management and boards should be environmental, social, and governance (ESG) issues. A public stance on ESG standards framework issues was once used as a public relations strategy. However, in the quickly evolving business environment of today, paying attention to ESG issues is increasingly important for long-term competitive success.
Major institutional investors are expressing their expectations that the companies they own will adopt proactive ESG policies and messaging in response to this realization. Because a company’s ability to manage environmental, social, and governance issues demonstrates the leadership and good governance that is necessary, we are increasingly incorporating these issues into our investment process. so crucial to long-term growth. During the 2017 proxy season, State Street Global Advisors (SSGA) put this philosophy into action by voting against the re-election of 400 directors. companies that, according to SSGA, made no significant effort to appoint women to their all-male boards.
Here’s How Good ESG standards framework Practices Can Help Companies and Investors:
1. Effective ESG initiatives can boost stock liquidity
Massive sums of money are being invested in corporations that proactively govern and operate ethically and sustainably by both individual and institutional investors. Sustainable and impact investing actively achieve double-digit growth rates. The US SIF Foundation reports that the total amount of U.S.-domiciled investments made using sustainable, responsible, and impact (SRI) strategies reached $8.72 trillion, up 33% from 2014 and increasing 14 times since 1995. This amounts to about 1 out of every 6 dollars managed.
ESG evaluations are now frequently incorporated into portfolio risk assessments by investment firms, which is a telling sign that capital will continue to flow to businesses with effective ESG programs and practices.
2. Competitive value can be unlocked by ESG initiatives
Businesses are better able to spot strategic opportunities and overcome competitive challenges when they understand the value of adapting to changing socioeconomic and environmental conditions. A company’s competitive moat compared to other players in the industry can be widened by proactive and integrated ESG policies.
Executives who improve working conditions, diversify their teams, give back to their communities, and support environmentally friendly policies also help to build the company’s reputation. Millennials in particular are increasingly becoming investors, consumers, and employees. They pay attention to companies that behave ethically and show loyalty to them.
3. Activism can be discouraged by proactively addressing ESG issues
Activists have long used governance flaws as a weapon in proxy fights and campaigns against corporations, but lately, they’ve been focusing more on management teams and boards that don’t take a proactive approach to potential social or environmental issues.
4. Organizations that support strong ESG standards framework and values are more likely to draw and keep the top talent
Employees who are committed to the company, who stay with it, and who feel valued generate intangible goodwill that enhances the workforce’s overall productivity and builds the company’s brand.
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