As ESG investing gains traction, investment professionals face mounting challenges in integrating ESG factors into their investment processes. Explore the hurdles related to data analysis, materiality assessment, and incorporating ESG considerations within financial models. Source- https://www.docullyvdr.com/blog/virtual-data-room/mounting-pressures-on-esg-investing/

1. Mounting Pressures on ESG Investing
Environmental, social and corporate governance (ESG), the framework widely
used by listed companies to evaluate sustainability-related disclosures is
de ning the future of sustainable business and nance. The Covid pandemic
accelerated the focus on ESG Investing, when governments were making
decisions to sustain their economies and also looking forward to a sustainable
future. Mounting pressures from governments, regulators, industry, investors
and customers has driven ESG to the top of business agenda. This role of
regulation and data is shaping tomorrows green economy. After initial focus on
the environmental aspects of ESG, social and governance considerations are
now gaining precedence. An alignment and compliance with emerging ESG
standards is turning out to be the core di erentiator for long term business
success across industries, especially in the nancial, energy and manufacturing
markets globally. It is also helping companies mitigate risks. Although currently
there seems to be a lack of harmony in the existing approaches to implementing
Posted on September 18, 2022
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2. there seems to be a lack of harmony in the existing approaches to implementing
ESG frameworks and best practices across markets and regions, we are now
seeing an increased engagement by governments and regulators to align around
a more uni ed approach to ESG Investing. If regulation is the driver of change
then data is playing a key role in delivering traceability, transparency and
insights to validate the ESG credentials of a company, stock or an investment
strategy.
Investors increasingly believe that companies that perform well on ESG are less
risky and are better positioned for the long-term, making them better prepared
for any uncertainties ahead. The ways to overcome challenges of ESG Investing
include:
Getting your own house in order to truly walk the talk
It’s easy for anyone to spout a set of lofty ambitions when it comes to diversity,
sustainability and social justice. But demonstrating what you’re actually doing
and tangibly achieve it is crucial to set the talkers apart from the doers. Adding
proof to your statements is key. The more information that we put into the
market, the more transparency we provide, the better the decision making will
be by the end customer. Using data intelligence and analytics helps companies
boost their ESG performance.
Leverage data to prove what you’ve achieved
Data can fuel transparency by backing up marketing messages, but marketers
shouldn’t underestimate the importance of choosing the right data to tell the
most accurate story. Robust decisions based on quality credentials.
Clearer benchmarks and standards are required to tell a more consistent story
A shared industry framework with a single common language is currently
lacking. It’s di cult to position a product or o ering in comparison to
something else. So having a standard understanding will give us better
di erentiation opportunities. Being able to compare apples with apples would
o er us another level of granularity and di erentiation.
Evidence-based communications helps avoid “greenwashing
Without such proof points, it’s di cult to sift through all the claims businesses
make and work out what’s credible and what’s not. Because there’s a lack of
evidence of expertise and quality around ESG factors, trust is lacking. Moreover
the industry is also not helping itself by rushing towards marketing messages

3. the industry is also not helping itself by rushing towards marketing messages
which are not substantiated with evidence. Assurance engagement, where a
company engages professional services rms to provide assurance services on
ESG sustainability reports, adds credibility to the company’s commitment to
sustainability. ESG rating rms have extensive data and analytics capabilities
leveraging technology to help clients with their ESG investments. This is where
anyone would see the most value in ESG ratings. Companies whose
stakeholders focus on ESG are putting themselves in a good position to be
winners in the future. Stakeholder capitalism is only going to be more
prominent in the future. This means that non- nancial performance is being
considered more frequently and more seriously when investment decisions are
being made. Companies wanting to raise capital need to communicate their
sustainability agenda to their investors.
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