The term ESG might seems rather standardized as merely a compliance requirement to your company- but beyond simply a routine, ESG is proven to support companies in the long run as they move towards a sustainable future for themselves. False is now the notion that capitalism is synonymous for zero sustainability in terms of the natural environment, human resources and internal governance of a company. The past decade has seen a positive rise in the need and importance of sustainability for a company’s own benefit and with it, the reporting aspect has better improved too.
What is Asia’s status quo?
Asia has been peculiar in their need and stringent regulations on non financial data reporting as opposed to their western counterparts in the corporate world. A study conducted by Global Sustainable Investment Alliance proved to show that in 2016, Europe and the United States growth of socially responsible investments far superseded the greater Asian region, excluding Japan which has a relatively better reputation on ESG reporting and investment.
In Asia-excluding Japan, only US$52.1 billion of funds were managed with “responsible” investment strategies, a fraction of the US$12 trillion in Europe, US$8.7 trillion in the US and US$473.6 billion in Japan, according to the study.
What is ESG Investment?
ESG or sustainable investing is an umbrella term for investments made by companies that seek positive returns and have a long-term impact on society, environment and eventually the business. Although this may not seem profitable at first sight or for short-term investments, investors who have started to follow this have reported back positively in terms of their and non-financial and financial returns. This long-term investment strategy is the step forward for businesses in Asia to stay ahead in terms of “extra-financial” factors.
What are the risks of ESG Investing?
The main risks a business will face come out of the consequences of not investing sustainably. Especially for certain industries such as agriculture and rice production in asian countries, they may face physical risk where they may run out of business or put at very high risk as a result of climate change, flooding or rising sea levels.
If the business may not face a direct physical threat, they are not free from legal risks such as the ongoing lawsuit against tobacco companies since the 1950s which state that they are creating the cause of lung cancer. The company then faces reputational risks and this can turn into competitive risks where their competitors may invest sustainably and gain a competitive advantage over you.
When it comes to ESG investing, the investor itself may not be viable to potential threats the company may face when making the initial investment. However, the long term benefits to a company have proven to be substantial.
Invest responsibly, Sustain Asia!
