Corporate sustainability must include nature of financing

Brian Haugh, Head of BDO Valuation & Financial Modelling Centre featured in The Irish Times Special Report on the Irish Funds Industry.

Another push to ensure companies are kind to the planet lies with the workforce. GenZ and Millennials are very vocal when accessing the profile of a company. Older generations placed items like salary and health packages high up the desirability list, whereas the younger generations want to align with corporate culture, are keen to see value propositions and will steer away from companies with negative social reputations.

“Sustainable investing is generally defined as investing based on environmental, social and governance (ESG) principles, so it takes into consideration the impact of an investment on the environment, on society and also assessing the governance structures in place,” says Brian.

It’s certainly a major area of focus for investors; the OECD estimates put the value of ESG investing at about $40 trillion in 2020 with ESG ratings applied to companies representing 80 per cent of global market capitalisation.

Altruistic motivations

“This increased scrutiny of ESG issues has put pressure on companies to disclose certain non-financial information about their activities that they may previously have preferred to keep private. Apart from any altruistic motivations, big business is having to show how it is becoming more sustainable because it is being measured on it through ESG ratings. The reporting and disclosure environment is found somewhat lacking at times due to inconsistencies and limitations of scope, however, recent developments such as the EU Taxonomy are helpful in creating a common benchmark against which to report on ESG activities.

“It’s important to remember that while ESG ratings are helpful in assessing a business’ sustainability this is merely a starting point; a truly sustainable investing strategy will require going beyond ratings to consider an investment holistically so as to capture aspects that are not covered in ESG reporting,” says Brian, agreeing with the walk-the-walk exhortation.

Content adapted from The Irish Times.

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