For years, experts, analysts, investors, and corporate teams have spoken about ESG (Environmental, Social, and Governance) criteria--leveraging this progressive framework to inform investment decisions and develop internal strategies. Over the past decade, ESG has made its way to the mainstream as employees and conscious customers take an active stance on climate change, social responsibility, diversity, and more.
In 2020, more than any other year, ESG has emerged as a key topic in a world dominated by COVID-19, election cycles, and social justice conversations. Why should corporate teams care about embracing ESG? In Sustainable Success: The Rise of ESG and How to Prepare for the Future, we dig into the impact of ESG and how your team can adapt to today’s rapidly-evolving environment.
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ESG: Why Does It Matter?
ESG investing is a growing megatrend rooted in long-term structural changes in investor and consumer behavior.
Today, more than 1 in 4 dollars (or $20 trillion) of global AUM is managed under an ESG strategy. Studies over the last ten years indicate that ESG strategies/investments will either rival or outperform the return of conventional strategies.
More money is being invested in top-rated ESG companies as millennials grow as a demographic--they are twice as likely as other demographic cohorts to participate in sustainable investing. According to a Bank of America survey, a staggering 90% of millennials are currently participating in impact investing or plan to do so. Millennials have grown up in an era where discussions on topics like climate change, carbon emissions, resource shortages, mass migration, and the circular economy have been more intense than ever before.
Source: AlphaSense | Mentions of ESG in transcripts and in the media have significantly increased over the past 10 years, reaching all-time highs in 2018.
Why do millennials matter so much? They are more likely to view investing as a means to express their values and they have overtaken Baby Boomers as the most populous generation in the U.S. According to Goldman Sachs, millennials’ spending power is expected to rise by 17% by 2022.
Which Companies are Participating in (or Talking About) About ESG?
Results of a new trends study by the Governance & Accountability Institute confirm that while a majority 86% of large publicly-traded companies in the S&P 500 continue to set the pace for corporate sustainability reporting, 60% of the companies included in the Russell 1000® also published sustainability reports in the year 2018.
According to AlphaSense data, there have been over 430 ESG reports published by U.S. companies in the last six months. Out of those reports, over 10% were published within the Oil, Gas & Consumable Fuels sector, closely followed by Equity Real Estate Investment Trusts, and Chemicals.
Source: AlphaSense | Top 10 Sectors: Number of Published ESG Reports Over the Past 6 Months
Looking back over a 5-year span, out of all U.S. companies, Advanced Micro Devices has published the most ESG reports, followed by CMS Energy Corp, ConocoPhillips, Gap, and Humana.
Source: AlphaSense | Top 10 U.S. Companies with the Highest Number of Published ESG Reports (2015 - 2020)
Not every company that has published a significant number of ESG reports has ranked as a top-rated ESG company, though; and many companies that have published ESG reports may not be as “green” or socially-conscious as they position themselves to be. Understanding ESG is more important ever than before, and avoiding greenwashing is essential for corporate teams to ensure their ESG strategies are truly effective.
To monitor the most important ESG-related trends as we head into 2021, download Sustainable Success: The Rise of ESG and How to Prepare for the Future.