In the face of volatile pay-for-play schemes between Big Oil and out of touch politicians, new bans on responsible investing, and fossil fuel mandates, the business community is doubling down on responsible investing. Financial managers are growing their investments in sustainable funds while corporate executives are incentivizing climate-friendly business practices and voluntarily establishing ambitious sustainability goals. Their message is clear: ESG is here to stay. Why? Because evidence shows sustainable funds have comparable, if not better, financial returns to traditional funds with less downside risk, with nearly 80% of impact investors reporting that their financial performance meets or exceeds their targets.
Below is a roundup of recent developments that spotlight the business community’s growing demand for ESG and responsible investments.
Financial managers see climate change as a growing risk and are expanding investments in ESG funds.
- A recent survey conducted by Deloitte found an overwhelming majority (83%) of mergers and acquisitions buyers would pay an additional 3% to acquire a company that demonstrates good ESG performance. The survey, which included 500 M&A leaders of major companies and private equity firms, concluded that the role of ESG in financial dealmaking is becoming increasingly significant.
- New financial data suggests green and sustainable bond issuance revenue is steadily growing – and positioned to continue producing increasing returns. Q1 returns for sustainable funds went up 36% from the previous quarter. In the context of the earnings, Morgan Stanley Managing Director Nicholas Tatlow said “sustainable investing is absolutely around to grow for the medium and long term.”
- Asset managers are increasingly taking ESG measures into account when making investment decisions–with climate issues serving as the most significant driver of sustainable investments–according to a survey conducted by Morningstar Indexes and Sustainalytics.
CEOs continue to invest in sustainability and the climate transition as profitability grows.
- A May 2024 survey conducted by Morgan Stanley found that a vast majority of large companies view sustainability as an opportunity to increase profitability, creating the potential for high revenues and lower cost of capital. According to the survey, a majority of companies acknowledged the role of sustainability in their long term business strategies, with 85% of respondents saying “that they see sustainability as a value creation opportunity.”
- A majority of CEOs (54%) now place a greater priority on sustainability than they did a year ago, a new EY survey reveals. The study, which involved 1,200 CEOs from large companies in 21 different countries and five different industries, also concluded that decarbonization is the number one long-term strategic priority for company executives. Leading CEOs are becoming increasingly optimistic about the financial potential for sustainable funds.
Major companies continue to expand use of sustainability disclosures and ESG metrics.
- Nearly nine out of ten companies are willing to disclose detailed carbon-footprint data beyond what is required of them, according to a recent survey conducted by global consulting firm Workiva. The greatest majority of companies that said they would voluntarily disclose either all or part of Europe’s Corporate Sustainability Reporting Directive were U.S. companies–with 86% responding that they were willing to voluntarily report climate risk and impact data.
- New research from insurance services provider WTW found that a majority of companies from the S&P Composite 1500 Index have ESG incorporated ESG into their CEO incentive plan performance metrics. This is a 23% increase from 2019–at the same time as the use of several other non-financial performance metrics have gone down.
Younger generations are increasingly making workplace decisions based on climate concerns.
- Sustainability and environmental issues play a large role in shaping workplace and consumer decision-making among millennials and Gen Z. A recent Deloitte study found that over 40% of working adults in each generation either have left or plan to leave a job because of climate concerns. Nearly two thirds of respondents in each generation said that they are willing to pay more for environmentally sustainable products. In addition, respondents overwhelmingly (75%) said that “an organization’s community engagement and societal impact is an important factor when considering a potential employer.”
