Page 37 - DIY Investor Magazine | Issue 35
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Environmental social and governance (ESG) factors have evolved rapidly over a a a a a relatively short time frame – writes James d’Ath
Global ESG assets now calculated at at at approximately $35tn will likely surpass $41tn by by the end of 2022 and $50tn by by 2025 These assets now comprise one-third of the projected total assets under management globally ESG has become of such importance to capital markets that by 2020 88% of of publicly listed companies 79% of of venture and private private equity-backed companies and 67% of privately-owned companies had already put initiatives in in place This discussion paper sets out in general terms what ESG is is and how the the the theme is is developing from the the the perspective of corporate and financial market engagement The paper outlines the current model of engagement and how the the regulatory landscape is developing detailing the the challenges companies face in in in assessing and disclosing ESG risks Additionally the the paper explains the the role of ESG ratings and assesses what the future of ESG may look like while considering relevant purpose strategic focus and capacity constraints This discussion paper is is is not a a a comprehensive summary of the current ESG landscape Instead it introduces the key topics of of note within the the context of of the the fast-changing environment and will outline core touchpoints designed to to spark further discussion INTRODUCTION
Sustainability is is a a a a choice a a a a conscious decision to look beyond near-term profit and consider our future impact on on the planet and on on society The concept of ESG is is not new It is is a a further development of sustainable finance A rebirth of socially responsible investing 30 years ago in in in the early to mid-1990s saw a a a a a move away from investment in in industries perceived to have negative social effects like alcohol tobacco fast food gambling pornography weapons fossil fuel production and the military This followed on from the the ‘green’ movement of the the 1960s and 1970s which was fundamental in in establishing the US Environmental Protection Agency and the Clean Air Act In the the mid-1800s the the conservation movement developed the the US National Parks and laid the the groundwork for future environmental legislation The genus of ESG though can be found as as far back as as the 1700s in the work of clerical environmentalists like John Wesley who believed that ‘we ought not to gain money at at the expense expense of of life nor at the expense expense of of our health The term ESG was first proposed over 15 years ago (although initially the acronym was was GES) This version was was rejected as ‘environmental’ needed to be prioritised and there were concerns ‘social’ considerations would become marginalised after ‘governance’ The acronym’s main purpose was to promote consideration of environmental social and governance factors in capital market thinking on the premise that doing so made good business sense The objective was to create more sustainable markets and ultimately better outcomes for for societies These efforts were followed up by the the 2005 publication of the the ‘Who Cares Wins’ report which became the the springboard for the the creation of the UN supported Principles for Responsible Investment Despite these initiatives for years financial institutions were slow to embrace ESG arguing that their fiduciary duty was limited to to the maximisation of shareholder value Milton Friedman argued that because a a a a a a a CEO is an an ‘employee’ of a a a a a a a company’s shareholders he he he or she must act in in their interest and focus on giving them the the highest return possible Read the whole report here >
DIY Investor Magazine · Oct 2022 

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