01 March 2023
Environmental, Social and corporate Governance (ESG) is a phenomenon which has taken over the investment markets. While some believe this is just a fad, in reality, it is now ingrained in the operational DNA of private and public companies. Quite how it will impact access to finance in the future remains to be seen, but ESG is a measure many investors and governments will take more significant notice of going forward.
The idea of changing how businesses operate, considering the environment, social impact and corporate governance, is not new. What is relatively new are the latest drivers for this trend, both APAC politicians and institutional investors. Indeed, many would also argue that private investors are "doing their bit", but their influence can be significantly less.
Undoubtedly, more regulations will be introduced in the short, medium and long-term to support ESG investment. Growing demand for sustainable investment options as well as greater APAC regulatory scrutiny will certainly put ESG practices under the spotlight. However, focusing on the central issues, the environment, climate change, social inequality and fairer corporate governance, is crucial. These are issues which are prevalent across many areas of the APAC region.
Even though ESG is a worldwide phenomenon, this has enjoyed considerable focus in the APAC region. Many companies are now involved in negative screening, positive screening and active engagement with institutional investors to confirm their ESG credentials. The APAC region is expected to account for more than 40% of worldwide GDP by 2050, hence the need for regional governments to stay one step ahead of the latest investment trends.
The emergence of best practices within the ESG movement has forced many companies and investors to rethink their approach. We know that research into individual companies now includes ESG risk and opportunity assessments. Governments and investors are now more engaged with companies that drive their ESG ambitions. The incorporation of ESG metrics into the investment decision-making process is now commonplace.
In recent months, global regulators have clamped down on companies making erroneous or sometimes misleading ESG claims. So far, we have yet to see the emergence of a worldwide standardised ESG metric; therefore, it can be difficult to assess compliance and, more to the point, their impact. As the influence of APAC investment marketscontinues to grow, ESG will likely become an increasingly important measure of a company's long-term viability. As APAC markets open up to global investors, the influence of ESG is likely to spread relatively quickly.
If investors and companies are willing to take on the ESG challenge in these difficult times, surely this will get easier in more buoyant markets? While debatable how much some companies are doing behind the scenes, there is still a cost in terms of cold hard cash and time invested into ESG metrics. Nevertheless, slowly but surely, the world, particularly the APAC region, is waking up to investment markets' role in protecting the environment. ESG has been described by many as a fad, but it would appear to be mainstream today and likely to remain there tomorrow.Back to News