ESG Investments Can Uplift Underachievers
A Brief Summary
Most ESG (environmental, social, and governance) commentators believe that ethical investment is limited to companies that adhere to stated ESG principles, and that unethical industries and companies, such as carbon polluters or those involved in the production of weapons or tobacco, should be avoided.
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Instead of blacklisting ESG underachievers, others argue that investors should actively seek ownership of such companies in order to assist them in changing and becoming good global ESG citizens.
Given that the markets have already priced at the prices for ESG-compliant companies, such a move has the potential to raise big returns to investors, which is an incentive for those seeking greater than typical returns. There's also the added benefit of being known as ESG's White Knights. This assumes that such foresightful investors understand risk and impact measurement for their newly purchased assets. This necessitates an understanding of present and future data trends.
The goal is to have a better knowledge of the consequences that these investments will have on the local and global environment, as well as on sustainable development, and, more significantly, some insight into the potential of stranded assets if the below-par ESG investments fail.
As investors move their focus from what is acceptable technology now to new environment-friendly technology with unclear consequences in the future, the recent discussion on climate change has clearly demonstrated that conceivable scenarios pose a wide range of difficult-to-assess transition risks.
Where should a new breed of investors begin, and what data is available to help them better comprehend the risks and consequences? Carbon emissions disclosures are an important first step. Earth observation systems, sensors, and other tools can help investors learn a lot about what's going on in listed and non-listed companies.
This is a commendable project that could hopefully be replicated in the Gulf countries, where ESG compliance is becoming a priority. If this is to be implemented, companies should report ESG data in a clear and consistent manner so that investors can make informed decisions, and it should be readily accessible to all stakeholders, with the data submitted being the most important ones requested by investors to avoid "white-washing" the provision of selective data. If global data access projects take off, it will prove an old adage saying that the greater the challenge, the greater the pride in overcoming it.