Asset managers, investors and shareholders have made it clear — they expect to be kept apprised of organizations’ ESG activities, which they know are important drivers of long-term value. Sustainability reporting isn’t about public relations; the inclusion of ESG factors in investment strategies and decisions is rising, following studies consistently demonstrating the correlation between good management of ESG issues and positive returns.
BlackRock, the largest asset manager in the world, states in its Engagement Priorities for 2021: “Our conviction is that companies perform better when they are deliberate about their roles in society and act in the interests of their employees, customers, communities and shareholders. We use our voice as a shareholder to urge companies to focus on important issues, like climate change, the fair treatment of workers, and racial and gender equality, as we believe that leads to durable corporate profitability.”
Retail investors also show strong support for sustainability-focused investments, with the flow of capital into sustainable funds growing at a rapid pace. During 2020 alone, net flows into sustainable open-end and exchange-traded funds available to U.S. investors more than doubled year-over-year when they reached $51.1 billion and made up nearly one-fourth of overall net flows into stock and bond mutual funds in the U.S. Executives, too, are watching ESG trends. Results of a 2020 McKinsey Global Survey indicated that C-suite leaders and investment professionals would be willing to “pay about a 10% median premium to acquire a company with a positive record for ESG issues over one with a negative record.”
Regulators are also paying close attention to ESG activities. Along with market forces, a shifting regulatory climate suggests that ESG reporting may not remain voluntary for long. The Biden administration has exhibited enthusiasm for climate-smart regulations within its whole-of-government approach to climate change, and the SEC is well-positioned to take a central role in maturing America’s regulatory regime. Your organization will be better prepared to meet the demands of stakeholders, investors and regulators by establishing ESG reporting capabilities and initiatives now. This requires the engagement of senior leadership. ESG issues must be a focus of those who drive strategy and make capital-allocation decisions.
Explore the trends driving organizations to implement sustainability reporting, and see our guidance for your implementation strategies. Download Investors and stakeholders want ESG information.
For additional insights and information about developments in committing to ESG, visit ESG: A purpose-driven approach.
John Friedman is a managing director in Grant Thornton LLP’s Environmental, Social and Governance (ESG) and Sustainability practice, based in the firm’s Arlington, Virginia office.
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