ESG investment is not just good for humanity, it also benefits the bottom-line, says Chairman and CEO of Resource Group Hisham Itani.
The global investment landscape is changing in several ways, and the transition towards sustainable investments is ushering in this change. The growing need to balance ethical goals with financial objectives is leading many investors to weigh non-financial considerations in the investment decision process. In short, environmental, sustainable, and corporate governance scrutiny (ESG) has become a leading and contemporary investment criterion.
The shift towards emphasis on sustainability is driven by several considerations. Globally, there is growing traceable evidence of the financial impact of ESG issues, such as the increasing availability of responsible investment products, and the pressure from regulators and other stakeholders for companies to disclose more information on their ESG performance. Climate change is also a critical matter, as extreme weather events become more common and impact businesses and economies. Furthermore, as the global population rises, the planet’s resources are strained. These are all real global issues that have made long-term ecological balance a necessity.
ESG investing is not just good for humanity, it also impacts the bottom-line. A study by Morgan Stanley Capital International found that over a 10-year period, companies in the MSCI World Index (an extensive global stock index that measures large and mid-cap equity performance across 23 developed economies) with strong ESG ratings outperformed those with weak ESG ratings by 2.7 percentage points per year on average. PwC also estimates that developing the right structure and mechanisms for sustainable investments in the Middle East and Africa can help unlock major opportunities for the region: $2tn in economic growth and more than one million jobs by 2030. Evidently, sustainable investing is no longer a niche strategy, it has become mainstream.
A matter of purpose
While critics may argue that ESG investing is a new form of stakeholder capitalism that runs contrary to the spirit of capitalism, we must not forget that the purpose of business is to serve the greater good. Investments should not just be profit-driven; they must also be ethical and serve a higher purpose.
Our world is flawed by the effects of “zero-sum capitalism”, where profits have been the ultimate goal. ESG investing presents a comforting prospect in the way profits are made and shared. We are aware that there are still many challenges to be addressed if the investment sector is to play its part in addressing the UN’s Sustainable Development Goals. There is no clear-cut solution to these challenges, but we are confident that sustainable investment can be a powerful tool in the fight against climate change, poverty and inequality. With more and more companies and investors incorporating ESG in their equations, we are likely to see more progress in this area in the years to come.