Insights and Updates on ESG | Inrate Blogs (2024)

FAQs

What are some of the key societal trends that are driving an increased focus on ESG sustainability for companies such as Genesis? ›

ESG Impact Ratings: Assess how debt issuers impact the environment and society, regardless of whether we feel those impacts are immediately credit material. ESG Impact Categories: Five, clearly defined categories setting our ESG expectations for issuers.

The COVID-19 pandemic has reinforced the importance of ESG issues and accelerated the transition to a more inclusive capitalism. Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty.

If you're new to the term, 'ESG' stands for Environmental, Social, and Governance. ESG speaks of the triple bottom line – profit, people, and the planet. It's about assessing how your company's operations impact the world and ensuring these actions are aligned with your values and the values of society at large.

Measured by revenue, the Big Four global accounting firms include Deloitte, Ernst & Young (EY), PricewaterhouseCoopers (PwC), and Klynveld Peat Marwick Goerdeler (KPMG). The companies provide auditing services, tax, strategy and management consulting, valuation, market research, assurance, and legal advisory services.

Companies are grouped into one of five risk categories: negligible, low, medium, high, and severe based on the risk assessment findings. Issues are considered material within the ESG risk ratings if their inclusion in financial reporting would be likely to influence investor decision-making processes.

The terms environmental, social and governance and corporate social responsibility are being used more widely to describe how businesses can show their commitment to sustainability. The two terms have some overlapping meaning and are sometimes used interchangeably.

Why are people opposed to ESG? ›

“They may also argue that considering ESG factors could conflict with a fiduciary's duty to act in the best financial interests of plan participants. Some opponents also believe that ESG investing is politically motivated and could lead to biased investment decisions.”

One of the biggest criticisms of ESG is that it perpetuates what it was partly designed to stop – greenwashing.

Disadvantages of ESG investing

As a result, investors may have fewer investing possibilities. There is no commonly agreed standard for establishing which companies are “ESG-compliant,” making it difficult for investors to compare and evaluate different investment possibilities.

Smaller companies often lack the resources needed to produce lengthy sustainability reports, and so are at risk of being penalised for their lack of data. Some ESG data can be useful in certain circ*mstances, but an over reliance on simplistic ESG scores can be a dangerous strategy.

In majority of the cases, banks and lenders drive investments and financial expertise across private and public companies. Government regulations, investor pressure and a general sentiment around climate change is pushing companies to identify opportunities and fit ESG in their business models.

There are two broad schools of thought when it comes to why ESG matters; one starts from the role of investors in society and the other focuses on risk management. Many investor groups including pension funds, charities and endowment funds, see their role as more than just return-seekers.

It considers topics like inequality, working conditions, human rights, product safety, community relations, supply chain transparency, and more. ESG Social performance indicators can include things like diversity, income equality, workplace injury rates, philanthropy, and labor practices of suppliers.