If I had a dollar for every time I heard ESG during The Finance Story interviews, I’d be a millionaire.
Jokes aside, ESG factors are one of the hot topics in the Corporate, and even in the VC ecosystem. But embracing ESG is no longer a choice, it’s a necessity.
Why are investors increasingly considering ESG performance when making decisions, and consumers are favoring brands that align with their values?
We will decode everything surrounding the topic to get you up to speed.
What is ESG?
ESG stands for Environmental, Social, and Governance.
It is a framework for assessing a company’s performance on non-financial factors, such as its environmental impact, its treatment of employees and customers, and its corporate governance practices.
Stakeholders, such as investors, consumers, and NGOs, believe that companies with strong ESG performance are more likely to be successful in the long term, and they also want to invest in companies that are making a positive impact on the world.
Here are some examples of ESG factors:
- Environmental: Greenhouse gas emissions, deforestation, water pollution, waste management.
- Social: Employee diversity and inclusion, human rights, labor practices.
- Governance: Shareholder rights, board composition, executive compensation, auditor independence.
There is a growing focus on ESG in industries such as Aerospace & Defense, Financial Services, Aviation, Automotive, Health and Social Care, Retail & Consumer, and Technology.
History of ESG and when the term picked up pace
The history of ESG investing can be traced back to the early 1960s when investors began to exclude stocks from their portfolios based on ethical or social concerns.
For example, some investors divested from companies that were involved in the tobacco industry.
In the 1990s, there was a growing interest in socially responsible investing (SRI), which considered a wider range of factors, such as environmental impact, labor practices, and corporate governance.
SRI investors also began to focus on positive impact investing, which aims to invest in companies that are making a positive difference in the world.
ESG investing started to pick up pace in the early 2000s, but it has taken off in recent years.
According to the Global Sustainable Investment Alliance, ESG assets hit $35.3 trillion in 2020, 36% of all assets under management, and in 2021, Bloomberg Intelligence estimated that this number would rise to $50 trillion by 2025.
This growth is due to several factors, including:
- Increased awareness of sustainability and social responsibility issues.
- Institutional investors’ demand for ESG products.
- Regulatory changes in some countries have made it easier for investors to integrate ESG factors into their investment decisions. For example, in the European Union, the Sustainable Finance Disclosure Regulation (SFDR) requires asset managers and investment advisors to disclose how they integrate ESG factors into their investment processes and products.
Why Finance Professionals should gear up
ESG reporting skills are growing in demand, where one has to look at non-financial factors that can have a material impact on a company’s financial performance and long-term value.
ESG reporting is a type of corporate disclosure that details the environmental, social and governance (ESG) promises, efforts, and progress of an organization.
Although organizations have long had to report on financial and operational performance attributes, ESG reporting is a newer phenomenon that gained traction in the early 2000s.
A blog by KPMG mentions, that the EU’s Corporate Sustainability Reporting Directive (CSRD) is transforming ESG reporting. Starting in 2024, almost 50,000 companies will be subject to mandatory sustainability reporting, including non-EU companies that have subsidiaries operating within the EU or are listed on EU-regulated markets.
As the first CSRD reports are expected in 2025, for companies with a year ending on 31 December 2024, time is running out. Companies must ensure they can deliver accurate information from various departments within the organization to meet the new assurance requirements.
In April 2022, the UK enacted two mandatory ESG disclosure laws.
Even UAE’s President, his Highness Sheikh Mohamed bin Zayed Al Nahyan has declared 2023 as the “Year of Sustainability.”
The “Year of Sustainability” will encompass numerous initiatives, activities, and events rooted in the UAE’s enduring principles of sustainability, honoring the legacy of its founder, the late Sheikh Zayed bin Sultan Al Nahyan.
It will particularly emphasize environmental sustainability, aiming to inspire a collective effort towards sustainable practices nationwide in alignment with the UAE’s national strategy. This initiative unites all residents of the UAE in pursuit of a prosperous future.
During several interviews conducted by The Finance Story many Finance Professionals have emphasized the importance of understanding ESG.
Kush Vijay – Audit assistant manager at EY Oceania Sydney
“Sustainability is currently one of the most promising and potentially high-demand sectors worldwide. Every Big 4 firm and Big 10 firms globally are actively recruiting for positions in ESG and sustainability. As a finance professional, you must obtain a diploma in sustainability.
If I were 21 today, I would have reconsidered pursuing chartered accountancy. Alternatively, if I had already embarked on the path of CA, I would have certainly complemented it with a course in sustainability.”
Ayush Laddha – Senior Manager – Technical Accounting at The Ardonagh Group, London
“Finance is a constantly evolving field, with new developments emerging every year. The recent rise of ESG and sustainability reporting exemplifies this dynamic landscape. Staying current and agile is crucial because new changes continually arise. Recruiters and employers in the UK, Australia, and the US assess your ability to adapt and keep up-to-date with these developments.”
Vijay Ojha – Group Company Secretary at Sharaf Group Dubai
“In the present landscape, with increasing emphasis on Environmental, Social, and Governance (ESG) considerations, the demand for Company Secretaries is expected to rise even further due to their expertise in compliance matters.”
How to learn about ESG?
Now that you understand the importance of this topic you may ask, “How do I start learning ESG? What course should I pursue?”
To be honest, it entirely depends on your industry, role, company, and your convenience.
So, if you want to take the next step in amplifying your resume a bit more, here are some ESG-related courses both offline and online, that will teach you about the fundamentals.
- Fundamentals of Sustainability Accounting (FSA) Credential by SASB Standards – Now part of IFRS Foundation
- Certificate in ESG Investing by CFA Institute
- ESG Certificate Program by CFI
- Environmental, Social and Governance Leadership: A Pathway to Business Sustainability by University of Cambridge
- Sustainable Development MSc (online) by the University of Sussex
ESG investing is becoming increasingly popular, as investors become more aware of the importance of non-financial factors in corporate performance.
In 2022, ESG assets under management reached $35.3 trillion globally.
The future of ESG investing and the subsequent career opportunities look bright.
“If any professional asked me what are the big job opportunities today, that are not just limited to finance, I would say it is the space of data analytics and visualization, AI, Cyber Security, and ESG.” says Raajeev Batra – Partner & Head Private Enterprise, KPMG Lower Gulf