ESG and investors influence

25 Nov 2022:


Interesting trend going on in an environmental and sustainability space, where investors are using ESG / sustainability as a key indicator for exclusion of investment decision and driving corporate behaviour. The recent COP25 meeting has made this even more as a mandate and a future direction for the countries and corporates. However, the fundamental question is whether investors use this as a simple disqualification criterion if there is an absence of concrete ESG initiatives or framework in place. On a hindsight, any such requirements can give rises to window dressing or greenwashing by the companies in order to comply / get investors’ attention instead of actual value driven approach and outcomes.

Instead, investors should look more towards transformation and engagement approach where investors can drive their influence to work with the companies and get them to become green.

It is true that engagement has the better potential to create impact. It’s also true, however, that not everyone who claims to pursue an engagement approach is able to do so effectively. The size of an investment in a company obviously matters. Some companies are also not responsive to external investor pressure – especially in Asia, where numerous listed companies are majority-owned by deep-pocketed founders or families.