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As issues around sustainability, human rights and social responsibility continue to dominate headlines, corporations are facing increased pressure to prioritize Environmental, Social and Governance (ESG) in their business strategies. This has been true in the financial sector for years, and ESG initiatives have quickly gone from nice-to-have endeavors that earn goodwill from stockholders and potential investors to table-stakes business practices for all businesses. In fact, 88% of publicly traded companies have ESG initiatives in place, followed by 79% of venture and private equity-backed companies and 67% of privately-owned companies.
Today, people want to know that the companies they support are making positive contributions to society—and leaning into ESG is an increasingly important way to underscore your organization’s commitment to making ethical, net-positive decisions that serve stakeholders and the world at large. It can also mitigate the risks that come with doing business with companies that dabble in unethical or socially irresponsible practices.
Now more than ever, financial professionals must be proactive in identifying promising ESG investment opportunities and developing a more holistic view of the companies they work with. Here’s how Nexis® can help.
Conducting proper due diligence is essential for making sound investment decisions and mitigating potential risks, whether based on ESG or not. Any investment analyst or finance professional worth their salt knows that no deal can happen without a thorough understanding of a company’s leadership hierarchy and internal compliance practices, the competitive landscape, past financial performance, and organizational strengths and weaknesses.
This is especially true for ESG screening as regulations are evolving rapidly and international organizations or local governments are setting their standard guidance. You live in a fast paced world as it is, and these changing guidelines can make keeping up with all prospect profiles even harder.
But if you don’t have time to deep dive into an investment prospect’s ESG initiatives, you’re in luck. ESG Ratings, based on data from 20 of the premier socially responsible investment analysis firms, hundreds of nongovernmental organizations, government agencies, news feeds, social networking groups, smaller for-profit organizations and publishers are now available for many company profiles within the Nexis product suite.
These ratings, provided by CSRHub, help customers understand a company’s reputational or ethical business risk. The ESG Ratings break down ratings for each ESG category into further sub-categories, as well as providing an overall rating for the company. So, you can make informed decisions while saving time on research.
MORE: New Wolfsberg Principles warn global banks of the risk factors that require enhanced due diligence
As demand for ethical and sustainable products skyrockets, so does the risk of companies using ESG as a marketing ploy. Greenwashing, or unsubstantiated claims and efforts to deceive consumers into believing that a company has a greater positive environmental impact than it actually does, is a real problem; some of the world’s biggest corporations have been accused of misrepresenting their sustainability practices to increase profits.
Unsurprisingly, regulators are beginning to crack down on companies that engage in greenwashing, including in the marketing of investment funds. In fact, the EU will begin applying the Corporate Sustainability Reporting Directive to bring accountability and consistency to ESG reporting, and the SEC recently proposed new rules that would “promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of environmental, social, and governance (ESG) factors.” Given this, there are clearly economic benefits--aside from the social and environmental benefits--of being honest in your ESG statements. This goes for your company, as well as any partners or investments.
MORE: Understanding third party environmental impacts and the need for due diligence
Digging into company profiles and press releases is a great way to understand how a company is positioning itself in relation to ESG—but it’s equally important to get an idea of what others are saying. Whether you’re still in the research phase or you’ve already inked a deal with an up-and-coming business, you’ll want to stay on top of any hot ESG buzz, positive or negative.
Using a media monitoring tool like Nexis Newsdesk™, financial professionals can set up custom ESG monitoring alerts focused on specific companies and ESG topics. Content is pulled from traditional print and broadcast media, as well as trade publications, news releases, and more, so you can rest assured that you’ll be getting a thorough, well-rounded view of what people are saying about the organizations you’re dealing with.
MORE: How to deal with negative ESG news coverage
It's safe to say that we are rapidly transitioning into a new kind of economy—one that not only aims to benefit investors and stakeholders but addresses some of the most urgent societal challenges that we’ve never faced before. Companies across all industries will need to strike the right balance between financial results, social interests, environmental concerns, and corporate responsibility—so if your organization is serious about being ethical and socially conscious, the time is now to start investing in research and making those important decisions.