How are investors using ESG information?

by Carol Adams (Post updated with link to recording on 27th January 2021)

Here’s what I took away from the panel discussion I chaired on how investors use ESG info at CSRWorks International‘s Asia Sustainability Reporting Summit held in December:

  • many don’t use much at all
  • some think they need consistent & comparable data
  • some recognise that what they really need is to understand how well management are approaching ESG issues, incorporating them into strategy with robust governance oversight
  • there is limited recognition that if they don’t know about an organisation’s impacts on sustainable development, they don’t know about potentially big risks to the organisation i.e. impact reporting is critical.

So investors are not homogenous, are asking for very different information and not asking for information that is crucial in determining long term returns.

I was left with some questions:

  • why would investors try to compare ESG KPIs across companies without understanding the context (‘the story’ as Tim put it)?
  • why would investors want to put a monetary amount to physical climate change risk when at best its guess work about what, when, where? (Isn’t it better to understand how management is managing & how the board is monitoring?)

Thanks to panellists Madelyn Antoncic, PhD Michael Tang Pratima Divgi Tim Daniels for their insights. CSRWorks International post event feedback from participants showed this was the most popular panel.

Thanks to Elaine Cohen & Rajesh Chhabara for having me.

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  1. Not really surprising. Many responses are similar to those we would have obtained if the questions were about financial data :
    – Interest in ESG information depends on the nature of the investor and his strategy. For example, an index fund will be less demanding than a fundamental investor
    – Value depends on the ability of the company to create and sustain competitive advantages, which by definition, should be unique. This makes ESG comparability issue less critical (if one assumes that ESG is a key element of the strategy
    – ESG indicators are frequently useless as they are lagging. What is key is to understand where the company is heading to. Fundamental investors need leading KPIs and a proper narrative to understand the ESG story (link between ESG and strategy) and how the company is managed by the board.
    A good understanding of ESG depends on the quality of the dialogue between investors and the company.

    • Agree and thank you. But worth exploring I thought given the current discussion about sustainability reporting from an “investor perspective” where the focus is on consistent and comparable data. Shouldn’t be the main focus of investors.

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