ESG & Sustainable Investments-360° View

What started as a Corporate Social Responsibility (CSR) initiative by the United Nations 20 years ago has swelled into the Environmental, Social, and Governance (ESG ) movement and accelerated after the Paris Agreement 2015 and then boosted further after the declaration of Sustainable Development Goals (SDGs) by the United Nations to be achieved till 2030.

Many financial institutions and organizations have launched sustainability initiatives related to its governance, but there are critical questions to ask as we evaluate ESG investments, such as:

1. What are the vital differences between public equity and public debt investing and between public and private markets?
2. What are the major regulatory efforts in ESG investing in the Developed, Emerging and Underdeveloped Countries ?
3. How does a portfolio manager incorporate ESG factors into investment analysis?
4. How are investors thinking about climate change risk, and is there a useful framework that helps simplify this topic for capital allocators?

It is predicted that ESG assets could hit $53 trillion by 2025, a third of global assets under management (SOURCE: BLOOMBERG, 2021).

After answering the above-stated ESG Critical questions, we will be able to understand these Learning Objectives of this Article:

• Examine the origins of the stakeholder movement, which forms the basis for ESG investing :
• Utilize ESG reporting frameworks appropriate for your industry
• Analyze ESG ratings and supplementary data to ensure sound investment decisions
• Explain how organizations are responding to climate risk
• Use ESG data to inform stock picks and portfolio allocation decisions
• Describe the future of ESG investing and how it will evolve

Based on my Industrial research and best professional practical experience in various industries including (BIG4 Audit Firms, Oil and Gass, Petro Chemical, Textile, Construction, Manufacturing, Transportation, Informational Technology, Food and Beverages, Trading, and others...) 360-degree view of Sustainable investments related to ESG in the context of above-stated questions are as follows.

Investing, financing and operating decisions are influenced by the senior management and board of directors' sustainable vision under the umbrella of ESG and sustainability.

First of all mapping, the shareholders and stakeholders according to the basis of their ESG needs and interests.

Secondly, define ESG Landscapes, definition and measurement under ESG Framework as:

Thirdly, analyze ESG Metrics, ESG ratings and supplementary data to ensure sound investment decisions.

Fourthly, Use the Science of Climate to identify the risks associated with climate change, understand how organizations are responding to climate risk, and determine whether climate risk is reflected in asset prices.

Fifthly, Integrating ESG Metrics into Portfolio Allocation to analyze claims made by both funds and organizations about their sustainability efforts and examine how organizations deal with transition risk.

Lastly, The Future of Sustainable Investing delves into the future of ESG investing and examines the three pillars of sustainable investing:?intangibles, climate, and sustainability-based products.

ANSWERS TO THE ABOVE STATED CRITICAL QUESTIONS ARE AS FOLLOWS:

QUESTION # 1: What are the vital differences between public equity and public debt investing and between public and private markets?

Private equity investors are generally paid through distributions rather than stock accumulation. An advantage for public equity is its liquidity as most publicly traded stocks are available and easily traded daily through public market exchanges. Shareholders and Investors invest in companies producing eco-friendly products and having ESG Concerns, to maximize their wealth.

QUESTION # 2: What are the major regulatory efforts in ESG investing in the Developed, Emerging and Underdeveloped Countries?

Voluntary and non-voluntary disclosures related to the requirements of the companies to be fulfilled in the United States and in Europe like under The UK Corporate Governance Code (formerly known as the Combined Code)?2018, and Sarbanes Oxley Act respectively. Asian and the Gulf countries do not have strict regulations to follow Corporate Governance rules but Organisations with ESG disclosure Sense and voluntary efforts on Global Reporting Initiative (GRI ) guidelines in their annual reports could not only maximize their shareholder's wealth but also becomes sustainable to attract sustainable investments.

QUESTION # 3: How does a portfolio manager incorporate ESG factors into investment analysis?

Mapping Financial and non-financial Key Performance Indicators (KPIs), Matrices and indicators related to the ESG include Energy, Pollution, Water Usage, Waste management, biological diversity, food production, average global surface temperature, and carbon dioxide concentrations in the atmosphere, human population, and resource depletion. Measure and quantify and benchmark these matrics and KPIs against industry best practices and focus voluntary disclosures on the performance of company operations in their Annual reports.

QUESTION #4: How are investors thinking about climate change risk, and is there a useful framework that helps simplify this topic for capital allocators?

Climate Change is the 13th SDG of the United Nation and needs to identify, assess, measure, manage and report Climate Footprints and its impact on the company to the finance providers and stakeholders regarding the

• Clean Energy Access
• Smallholder Agriculture
• Sustainable Forestry
• Sustainable Water Management and others.

Environmental Green Audits and reporting on the issues of Climate Change could impact positively the decision-making of the Investors for their future sustainable investments.

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KEEP ESG SUSTAINABLE: Zahid Munir