by Daisy Mbiuki
The year 2020 was a year defined by a pandemic, a recession, and protests for racial equality. Before the onset of the pandemic, a global transition had begun to finance a more resilient and sustainable economy with global investors focusing on more than just financial returns and integrating ESG insights in their investment process.
ESG stands for Environmental, Social, and Governance. Environmental and social challenges are increasingly impacting the way we live and work.
Why ESG Investing
Across the world, ESG analysis has become an increasingly important part of the investment process as investors look to achieve positive change while realizing competitive investment returns. They have turned their focus to more sustainable businesses, which are more likely to bring in better, long-term financial value. Key trends in ESG right now range from climate change and carbon emissions to equality and human rights.
Investors are incorporating ESG data into their investment process to gain a better understanding of the companies they invest in. This helps identify material risks and growth opportunities. Investors are more likely now to support companies and products that advance environmental and social issues, where the interests of its workers, the environment, and local communities are taken care of alongside those of its shareholders. ESG investing has also garnered interest from the public sector, including central banks that have expressed support for ensuring ways to help transition financial systems toward “greener”, low-carbon economies.
While ESG investing continues to accelerate in growth, the measurement and transparency of these insights is still not clear. “Green washing” concerns by companies has prevented investors from committing even more capital in this category. Despite this, interest in ESG lens investing is still tremendous and we expect scrutiny of the companies to be increasingly close, which will be necessary in the integrity of companies reporting their ESG metrics. Company leaders will be forced to disclose the specific ESG criteria they use.
Regulators are working to form standards and define materiality in ESG factors to incorporate them into the investment process and enable like-for-like comparison between companies and investments.
Investors and corporates are facing growing pressure to address environmental and social risks in global value chains. In response, more and more companies are committing to making their operations more sustainable and setting goals to achieve net-zero greenhouse gas emissions.
Sub-Saharan Africa
A report by Fitch Ratings states that longer-term capital inflows in Sub-Saharan Africa will be influenced by sustainability-oriented strategies addressing risks such as climate change, electricity infrastructure, and transition from fossil fuel dependence.
Sub-Saharan Africa is considered the most commodity-dependent region in the world because of the export of petroleum products, coal, metals, and minerals. Therefore, as investors and corporates are facing growing pressures to address environmental and social risks in global value chains, companies in this region will face more scrutiny related to the sourcing and consumption of these products.
Environmental themes will see the biggest inflows in 2021 – especially clean energy and lower carbon emissions.
Investing through an ESG lens is about building an economy that is green, inclusive, and equitable.In committing to address these environmental and social issues, companies stand to access significant growth opportunities in the future which will lead to higher returns for their shareholders. Investing for both principles and performance is the future of investing and that future is here with us.
If you require guidance on how to incorporate ESG insights to your business strategy, reach out to us at Kraft Boron. Send an Email to info@kraft-boron.com