Photo by Scott Graham
ESG (environmental, social and corporate governance) has been an important facet in investor decision making for years; with many beginning to view ESG practises as a reflection of a company’s quality of management, operational performance, and financial reliability. Companies from a multitude of industries are now seeing the correlation between sustainable practises and better economic performance, with many enjoying the tangible benefits resulting from good ESG practises.
Broader, easier access to capital
One meta-study found that companies who implement reasonable ESG practises enjoy a significantly reduced cost of capital. Superior ESG performance positively affects credit ratings and assists with funding. In particular, good social and corporate governance leads to lower borrowing costs, with employee well-being and good disclosure policies being driving factors.
By adhering to ESG-friendly practises, companies can potentially access a broader range of capital. For example, resource companies that operate with renewable energy can access capital through green bonds and the growing amount of ESG-based funding around the world.
New attitudes, new investors
ESG-based or socially responsible investing (SRI) has been steadily growing over the last few years. In 2019 Morgan Stanley reported more than 85% U.S investors expressed interest in sustainable investing, with the market reaching $12 trillion in the United States alone.
The same study reported that 95% of millennials are interested in sustainable investing. As investors, millennials are more likely than any other generation to select assets that align with their personal values; 77% cite owning impact investments and 88% regularly review the ESG impact of their holdings.
Millennials are set to inherit $30 trillion of wealth which means the demand for ESG-driven products will continue to grow. By developing strong ESG standards, companies will capture the attention of value-based investors and gain a competitive advantage in their industry.
One meta-analysis found that ESG-minded companies outperformed their peers in both operational and stock price performance.
88% of studies reported companies that adhered to social or environmental standards showed better operational performance. These organisations were more likely to save money on water and energy, optimise their usage and reduce instances of resource waste. Many companies now manage their resource usage and track their supply chains with the help of new tech, saving money and time on exhaustive manual processes.
80% of studies reported a positive effect on stock price performance with stocks of ESG-focussed companies outperforming their less sustainable counterparts by a trend of 4.8% annually. Companies known for environmental disasters, higher pollution figures, and environmental regulation violations saw stock price decreases, whereas well governed, eco-efficient firms outperformed competitors.
If achieving a competitive advantage through ESG practises is a focus for you, Blockhead Technologies offers a suite of secure blockchain-backed tools that can support your ESG goals effectively.
STAMP Fuel provides companies with end-to-end fuel management. The platform tracks and optimises usage, deters fuel fraud and theft, and streamlines the diesel rebate process.
STAMP Supply does away with ethical, sustainability and quality issues by giving you full transparency and traceability over your supply chain.
Book a free demo today, or contact us if you have any questions.