My first piece about ESG went live back in 2019, and in that article, I made the statement that ESG investing was becoming mainstream. Nearly four years later, ESG is still a hot-button topic for corporate leaders and shareholders – so much so that politicians have joined the conversation too.
As investors have increasingly based their decisions on a company’s environmental, social, and corporate governance, opposing voices have grown louder and regulatory interest has widened to include state and local governments.
These voices of opposition have led to the appearance of “Anti-ESG Bills,” most of which aim to significantly limit or ban ESG investment strategies. Florida is one of the most recent states to take legislative action against ESG, alongside Texas, Kentucky, and others. While they all vary in scope and target, the central argument behind all these bills is that policy and social objectives shouldn’t take precedence over financial and economic gain, and that any corporation that thinks otherwise is a bad investment.
This view is not only narrow but has been proven inaccurate time-and-time again. While a lot has changed since 2019, the fact that committing to strong ESG policies can be extremely beneficial for both companies and investors still holds true.
Risk mitigation
Upholding ESG standards doesn’t mean abandoning shareholder value. In fact, ESG is largely about identifying and mitigating risks that could potentially harm businesses in the long run.
While the level at which investors choose to take ESG standards into account is subjective, most shareholders pay close attention to corporate sustainability. Things like energy efficiency, worker safety, and board independence can all pose a threat, and each one comes with financial implications too.
ESG offers an opportunity for investors to get more holistic insight into a company’s long-term potential, allowing them to pinpoint those risks, and how effectively they’re being mitigated, before putting skin in the game. What this provides is a sounder investment process that can build stable, longer-lasting returns while making a positive impact.
Resilience
Companies with strong ESG values have consistently shown resilience through stressful economic climates. Even amid the COVID-19 pandemic, ESG stocks produced above-market returns.
As we now face the latest set of economic pressures, the increased returns and decreased volatility associated with ESG should speak volumes to those who argue against it. In fact, sustainable funds and ESG-conscious companies have historically shown a greater ability to bounce back from market downturns, collapses, and looming recessions. This signifies a level of corporate strength and sustainability that is attractive to all stakeholders including workers, customers, and shareholders.
Long-term growth and competitive value
Companies that want long-term success need to adapt to changing socio-economic and environmental conditions, especially as millennials and Gen Z become employees, consumers, and investors. These younger demographics have shown to place higher importance on combatting issues such as climate change, gender, and racial inequality, rewarding socially responsible companies with their loyalty.
This creates a competitive advantage for companies with a proactive and integrated approach to ESG as investors recognize these shifts and the implications they’ve had – and will continue to have – on today’s business and consumer climate.
ESG has become increasingly popular for a reason, and it isn’t going anywhere. The focus on social responsibility will only continue to grow with Deloitte predicting client demand to drive ESG-mandated assets to comprise half of all professionally managed investments in the United States by 2025.
Committing to strong ESG policies is good for business and for society at large, and abandoning its principles won’t suffice in today’s consumer and corporate climate. Many leaders are still figuring out how to navigate incorporating ESG strategies into the fabric of their organizations, a task not made any easier with growing political pressures.
At Boldsquare we’ve had the opportunity to work with many public companies as ESG investing pressures rise; if you’re interested in learning more about how Boldsquare can facilitate your investor relations, get in touch.