Create Value Over The Long-Term
ESG and impact investing is not a niche or risky strategy any longer, but is now considered an important extension of traditional, meticulous investing with the added bonus of a positive impact on the community. We believe in the competitive advantage that comes from combining the positive impacts of ESG strategies with the proven strength of conventional investing techniques.
The Importance of ESG Strategy
Businesses that will thrive in the coming decades must prioritize sustainability. The reality is that companies that don’t set and report ESG targets will face greater operational, financial and reputational risk. Communities, boards, investors, media, and policymakers are increasingly scrutinizing the actions organizations are taking to address issues involving ESG. Sound ESG strategies are critical to long-term competitive success, sustainable growth, and overall corporate reputation.
What is ESG?
Environmental, Social, and Governance (ESG), also known as sustainable investing, refers to three central criteria in measuring the sustainability and societal impact of a company’s operations and their ability to create value over the long-term.
E - Environmental issues and sustainability are one of the most important concerns of the 21st century. A company’s energy use, natural resource conservation, and how it manages its environmental footprint all have an impact on society and the planet.
S - Social responsibility is evident in how a company manages its internal and external relationships. Does the company foster an inclusive and safe work environment for its employees? Does the company consider its community by contributing a percentage of profits and encouraging employee volunteerism?
G - Governance ensures accuracy, transparency, and diverse representation within a company’s practices and procedures. Anticipating risk and adhering to industry best practices are other important factors concerning governance.
Many companies are currently implementing ESG initiatives, but not formally tracking them or confidently reporting them to their stakeholders. Impacto specializes in creating an ESG strategic, custom framework that can help you identify any gaps and develop a tracking and reporting system that grows and protects your business.
Who are key stakeholders?
The pressure for companies to operate with transparency and social purpose has never been more intense. Communities, boards, investors, media, and policymakers are increasingly scrutinizing the actions organizations are taking to address issues involving ESG. ESG strategies are critical to long-term competitive success, sustainable growth, and overall corporate reputation.
A robust ESG program can open up access to large pools of capital, build a stronger corporate brand and promote sustainable long-term growth benefiting a company and its investors. Investors and Limited Partners (LPs) are increasingly applying these non-financial criteria as part of their analysis process to identify material risks and growth opportunities.
Market trends are also showing that a growing number of private equity firms are prioritizing strategies to enforce and embed their ESG policy into their investment processes. Beyond just compliance-oriented data, investors are looking for tangible evidence of how ESG initiatives are being implemented and ingrained into company processes. In return, many leading portfolio companies are understanding the value of a proactive ESG program as it affects the flow of capital.
ESG impacts access to capital. Having an ESG focused strategy is a competitive advantage that leads to strong investment opportunities.
In early 2021, The Securities and Exchange Commission (SEC) announced the creation of an Enforcement Task Force focused on Climate and ESG Issues that will proactively identify ESG-related issues, and will focus on identifying material gaps or misstatements in issuers' disclosures regarding climate risks. It will simultaneously analyze climate disclosure and compliance issues relating to investment advisers' and funds' ESG strategies.
Transparent and open communications are essential to building trust. By staying connected to your stakeholders you can develop a genuine and authentic relationship with the community.
What are the critical components of ESG?
Since there is no one set standard for all ESG programs, there's not an expectation of perfection but rather a gradual engagement in ESG issues and progress over time.
ESG initiatives have 3 components
- Defined and clear initiatives
- Demonstrable and measurable improvements
- Transparent initiative reporting