I spent many years on Wall Street – both on the investor side and as part of companies that had outside investors. The one thing we could all agree on was if you made an investment, the goal was to make money (legally, of course). How to pick the right investments? Well, that separates the greatest investors from the rest of us.
One investment style that has gained momentum is ESG investing, which stands for Environmental, Social, and Governance. Starting with its roots of socially responsible investing in the 1960s, has evolved into a more formalized approach of screening potential investments based on their ability to demonstrate their commitment to sustainability and ethical practices.
Like anything else, as its popularity has grown, it has staunch supporters and many against it – and has even become somewhat of a political hot button (particularly because climate change and diversity are two factors considered). Despite the debate raging on, this year, the European Commission will begin applying its Corporate Sustainability Reporting Directive (CSRD), which will bring a new approach to reporting, making ESG still a critical topic to understand.
But first, what is ESG?
ESG is typically broken down further into more specific areas regarding sustainable practices. For the environmental factors, companies are often evaluated on the impact of a company’s operations on climate change and pollution, as well as how a company conserves scarce natural resources. Within the social factors, companies are often evaluated on how they manage and treat their workforce, the safety of their products and processes and their effort to promote diversity, equity and inclusion. For the governance portion of the assessment, the quality of the board of directors is an important factor to be considered, along with transparency of reporting financial and non-financial disclosures and management of the supply chain.
ESG INVESTMENT IS TOUGHER TO COME BY, BUT STILL SIGNIFICANT
Though more than 90% of S&P 500 companies and 70% Russell 1000 companies now publish ESG reports, there are still many criticisms of ESG. As these criticisms have gotten louder, ESG investing has lost some steam. According to the Wall Street Journal, by March 2024, the percentage of newly created funds in the U.S. and Europe with ESG in their name has fallen from a peak of 8.3% to just 3.3%, with an argument being made that ESG investing may never recover.
With this backdrop, U.S. companies that have yet to start a program or those with extensive ones – are looking to continue to support ESG initiatives without making significant investments. Large European companies, on the other hand, have a new obligation to invest in some level of ESG reporting with the new CSRD.
Minitab Solutions: A Cost-Effective Way to Support ESG Programs
As someone with first-hand experience trying to build a program, Minitab’s solutions were critical to our ability to deliver our initial sustainability report. By harnessing the power of data analytics, Minitab Statistical Software can help organizations gain insight into environmental, social and governance factors. This enables reporting and disclosure of these items and creates a baseline for improvement.
Minitab Engage can help kick-off and manage an improvement project and even provide dashboards to measure the improvement.
Looking for specific ideas on how to get started?
Check out Part 2 of our blog that gives real-examples how to make ESG improvements.