ESG is a hot topic and part of many discussions across many industries. But what are the actions that follow these discussions?

We had the pleasure to talk to incredible experts, Francesco Stadler, Keilem Ng, and Victoria Shapovalova, about how to get started on ESG.

1. It is never too late to start on the ESG journey in this world facing so many challenges.

Our world is facing a lot of challenges now: overpopulation, biodiversity loss, climate change, and inequalities. ESG can be a great way to tackle these challenges.

Although “E” is usually the main focus of companies, “S” is also very important in a just transition that is often left out of the equation. What are some ways to work on “S”? We need to find the right key performance indicators (KPIs) depending on the project. For example, the gender ratio is an established KPI. KPIs also vary across geographies, so there are nuances and cultural contexts to consider while setting the Social KPIs. In essence, more standardization and recommendations to help companies develop “S” are needed.

“We all need to play a part in creating a more sustainable and fair world and it’s not too late to start.”

— Keilem Ng 

2. It is not impossible for small and medium-sized enterprises (SMEs) to start on the ESG journey.

Although it is difficult for SMEs to compete with large corporations in terms of scale, SMEs can start small. Many parameters included in ESG, like parental leave and environment, health and safety (EHS), have long been regulated and expected. SMEs can capitalize on these existing regulations when getting started.

“You can start with walking before you can run.”

— Victoria Shapovalova

3. A high ESG rating is not synonymous with being a “good” company. 

We should not conflate high ESG ratings with a company being “good.” As an example, a tobacco company was included in an ESG rating before, which stirred a lot of controversies. But could it be possible that a high ESG rating can mean a company is pivoting and adapting to survive the changing business environment and world? 

4. Using a common-sense check can be important in ESG investing.

ESG investing, in simple terms, is just considering ESG factors when making investment decisions. Based on ESG ratings, an investor can choose companies to invest in using the negative screening or exclusion approach. Tools like mutual funds and exchange-traded funds (EFTs) in the ESG space are also useful.

However, ultimately, one might consider a common-sense check to cut through all the complexities around ESG.

“If they’re doing something that fundamentally doesn’t sit right with you, then it doesn’t matter what the rating is.”

— Keilem Ng

5. Companies with an ESG strategy tend to perform better.  

Companies with an ESG strategy tend to put more time into thinking about their business strategy, business management, and risk management. Those companies tend to be more forward-looking as well. With new regulations coming, companies that are poised to be early movers or are preparing for the regulations rather than trying to catch up will do better.

For example, there was a British petroleum company that underwent a holistic transformation and improved on their diversity and inclusion. Not only has their performance on the Bloomberg DNI index improved, but also their financial performance. 

Therefore, it is great to align a company’s business model with a purpose, be it environmental or social. Also, a company should identify the risks and opportunities to see how it can gain from this new and evolving environment. 

Further resources suggested by Francesco:

• IMP – A Guide to Classifying the Impact of an Investment
• CSP – The Investor’s Guide to Impact 
• Bloomberg – The ESG Mirage
• Morningstar on ESG returns and 2022 Sustainable Investing

We hope you enjoyed this content as much as we did.

We look forward to hosting more events on ESG. Can’t wait to see you there!