ESG Factors: How Firms Attract Conscious Investors

Corporate Sustainability
Knowledge Center

Forum

New Topic

Tendekai Dzinamarira
Manager, Zimbabwe

ESG Factors: How Firms Attract Conscious Investors

🔥NEW ESG Factors is an umbrella term used by (professional) investors that refers to:
ESG factors is a set of standards and issues for a company's operations that conscious investors use to screen potential investments.

Use And Manipulation of ESG Factors by Firms

The trend for more corporate sustainability like in the recently published Sustainable Development Goals (SDGs) of the UN are forcing many organisations to consider ESG factors in their operations in order to hedge against risks associated with ESG factors and as an effort to attract investors in their businesses.
Most corporates noted that ESG factors can affect their corporate image and reputation because the 17 factors are integral elements that shape investor confidence, major criteria for capital markets valuation, and that they have an impact on company's relationship with stakeholders and stockholders.
As a result, firms are combining ESG performance factors in their operations in order to remain relevant in terms of attractiveness for investors and to facilitate their long-term sustainability drive. The following are some of the ways in which firms hedge strategic risks related to ESG factors. One should note that the impact of the factors varies from one company to another and depend also on other variables like market size and geographical location of the firm.

Corporate Sustainability Issues

Sustainable development driven investors consider how a company performs as a steward of nature before or when making investment decisions and select a company to invest in as a result of this analysis. Typical things considered as part of the environment are:
  • Climate change - firms disclose their climate change mitigation efforts and strategies aligned to reduce climate change.
  • Greenhouse gases (GHGs) - firms disclose their corporate emissions track record.
  • Pollution - firms disclose remediation measures and industrial facility reporting and may use Environmental Insurance.
  • Energy usage - firms uses alternative renewable source of energy like solar energy.
  • Remanufacturing and Recycling - firms adopt product life cycle stewardship by encouraging the use of 4Rs namely reduce, recycle, repair and reuse principles.
  • Carbon footprint - organisations participate in carbon reduction programs and can join social and industrial carbon emissions reduction coalitions.
  • Forest depletion - firms engage into reforestation and preservation of natural resources programs.

Corporate Social or Societal Responsibility Issues

Through social factors, investors want to understand the company's business relationships in society. As a result firms hedge risks related to societal issues in the following ways:
  • Human rights - firms considers workers' rights for both domestic and foreign employees.
  • Supply chain concerns - firms considers strategic alliances and outsourcing services in order to maintain good relationship with other stakeholders in the society.
  • Healthcare and food issues - for example, firms ensure there is access to health facilities, that health related costs are reasonable, and that agricultural community relations are maintained.

Corporate Governance Issues

Prior to investment decisions, investors might want to know more about an organisation's processes and procedures, compliance issues, accounting methods being used to test accuracy, stockholders' opportunities to vote for the board and conflict of interest issues. This will lead firms to adopt some of the following measures:

Merits of ESG Factors

  • ESG criteria help to ensure that companies with risky practices are avoided by investors.
  • ESG minded businesses gain more traction as investors support them and track their performances.
  • The various internal and external ESG assessments can have a positive practical effect beyond any ethical or investment concerns.

Disadvantages of ESG Factors

  • ESG factors limit investor options and as a result investor potential profits as certain financially highly attractive investments that do not meet ESG criteria are dropped.
⇨ What is your opinion about the usage of ESG criteria by investors for making investment decisions and by companies to behave in a better way?
⇨ I could find only one disadvantage of applying ESG factors. There must be more?

  Michael Nwosu
Entrepreneur, United Kingdom
 

Covid-19, the ESG Criteria and the Future of Businesses

The ESG criteria like ethical sourcing, etc. are m (...)

  Gandhi Heryanto
Management Consultant, Indonesia
 

Other Disadvantages of ESG Factors

It is right that ESG factors limit investor option (...)

  Walther Reategui
Teacher, Peru
 

Evidence Between ESG Factors and Financial Profitability

Especially in medium and small businesses, it is n (...)

  Jaap de Jonge
Editor, Netherlands
 

Are you Serious About your ESG Effort?

If you are convinced that your ESG effort is reall (...)

Participate and leave a comment
Exchanging your ideas stimulates your personal and professional development. And you can help other people! Please motivate your point of view. You can still edit your comment for 3 hours.

Start a new forum topic

 

More on Corporate Sustainability
Summary
Forum
Why Should Firms Invest Strategically in Sustainability?
Causes of the Gap Between Good Intentions and Actual Results of Corporate Sustainability Practices
The Impacts of Environmental Regulations on Competitive Advantage
Why Does CSR Attract Customers?
Challenges of Sustainability Certification
Factors in Implementation of Environmental Management
Substantive Corporate Sustainability versus Symbolic Corporate Sustainability
10 Simple Ideas to Start with Going Green and Sustainability
Supply Chain Sustainability
Sustainability: What Should we Be Focused On?
10 Ways to Become a Socially Responsible Organization
ESG Factors: How Firms Attract Conscious Investors
Every Cent of Earning is not the Holy Grail
Fair Trade Labels: A Good Step?
Hotel Sustainability: Put Humans in Focus
How to Invest in Sustainable Portfolios
Issues with Creating Sustainable Workplaces
Sustainability and Quality Management System Go Hand in Hand
Three Main Weaknesses in Corporate Sustainability Governance
Why is Business / Corporate Sustainability Important?
Overcoming Barriers to Corporate Sustainability (CS)
PROs and CONs of Sustainable Development: Which One Wins?
Reasons for Omitting Sustainability Reporting
Sustainability Reporting Should be Made Mandatory by Law
Cool Corporate Sustainability Quote
Investigate the PROCESS Impact on Sustainability: not Just the MATERIALS Used!
Strategies to Contain Environmental Degradation
Sustainability of Corporations, Industries and Nations
Waste-Free Production: Cradle to Cradle
Corporate Sustainability Frameworks?
Sustainability Goals Needs to Be Articulated in Financial Terms
The Effect the Increasing Rate of Change is Having on Corporate Sustainability
The Role of Stock Markets in Corporate Sustainability
Corporate Sustainability in India
Sustainability is a Pipe Dream
Best Practices
How to Improve Popularity of Remanufactured Products?
Reasons for Sustainability Innovation
Special Interest Group

Are you interested in Corporate Sustainability? Sign up for free

Notify your students

Copy this into your study materials:

and add a hyperlink to:

Link to this discussion

Copy this HTML code to your web site:

Corporate Sustainability
Knowledge Center



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2021 12manage - The Executive Fast Track. V15.8 - Last updated: 14-5-2021. All names of their owners.