Wall Street’s largest firms are listing environmental, social, and governance (ESG) as a main target sector for investment in the coming year. In the U.S. in 2020, investors put in $47 billion into investment strategies that factor in ESG reporting and solutions, according to sources from Wall Street financial firms. That figure is almost double the total amount of investment from the previous five years combined.
The most recent data on this, which is supposed to be updated again this year, shows that a third of investors are using ESG assessments to decide what companies to exclude from their portfolios, while an additional third are integrating ESG into their investment strategy.
While not all investors are completely homogenous in their thoughts on ESG, there is a consensus on its significance and importance going forward, and in a large part, is being driven by the Paris Agreement and how it is being implemented across the globe. TakeEurope: European Regulation attempts to make financial service firms the agent of environmental change by mandating them to report the ESG performance of their portfolio companies.
Certain EU regulation aim to require asset managers to integrate ESG considerations into their organizational, operational, and internal controls – as well as risk management and compliance processes. For many different businesses, this increased focus on ESG reporting provides an ample opportunity to demonstrate the sustainability within their business models and brands.
Although many organizations have put a great emphasis on ESG recently, far too many are still dependent on manual processes and outdated ESG reporting solutions. Most organizations have their finger on the pulse on the direction of ESG requirements and standards, and some have been making progress with an integrated and automated ESG technology architecture - that not only provides investors with the assurance they need but enables them to increase efficiency and lower the costs of time and labor-intensive manual processes within their own systems and to take advantage of the opportunities many believe ESG will provide.
From the lens of many organizations, failure to implement a sustainable and effective ESG architecture and framework could lead to the organization essentially being locked out of the financial system and investment and financing will only flow to those that can meet ESG reporting demands and standards. As investment strategies and decisions become more influenced by the effectiveness and efficiency of the organizations ESG governance and reporting, capital will continue to flow for better performers and will fall for poorer performers.
With sustainable and environmentally friendly investment portfolios growing around the globe, the business case for ESG reporting and governance solutions is growing stronger. It’s now down to SaaS solution providers to harness the new-found popularity throughout the market and leverage these opportunities to provide tools to help organizations build sustainability.