Sustainability and ethical investing have become more prevalent in traditional money markets, as positive financing towards sustainable goals is seen to generate substantial returns. The introduction of the ‘Green Bond’ and ‘Sustainable Bond’ issued by countries are all geared toward the successful implementation of ESG inclusiveness in business activities.
The Green Bond typically includes renewable energy, sustainable resource use, conservation, clean transportation and adaptation to climate change. The criteria from the ESG are measured to assess companies “No Financial Performance”, and investors are keenly supporting firms to plan for the future where sustainability and ethical impact are considered most compared to capital appreciation.
For emerging economies to successfully tap from these financing sources, companies need to mainstream ESG principles in their programmes and processes. This is important as this shall enable them to meet the financing gap they need to finance development. For example, a minimum of $100 trillion in sponsoring or financing is available from institutional investors such as insurance companies, sovereign funds, and pension funds. This is enough to cover the $4.5 trillion to finance emerging countries needed each year to accomplish the Sustainable Development Goals by 2030.
Companies in emerging economies can demonstrate their efforts in prioritising ESG issue by adopting tools that enable them to quantify their ESG performance. ESG scores and ratings have become industrialised, and statistical alignments can be adopted on how companies treat their staff, manage supply chains, respond to climate change, increase diversity and inclusion, build community links and follow regulatory compliance.
Recent studies have shown that investors are more likely to consider companies that have quantifiable ESG performance. A 2018 report by Allianz showed that 79% of Americans backed the ideology of investing in a company that revived subject matters that matter most to them. From the survey conducted, 74% asserted that ESG investments both intrinsically motivate and made good financial sense, and 69% cited governance concerns such as top management wages and salaries, and transparency are as significant as their decision to invest.
ESG in the time of COVID A clear consequence of the Covid-19 pandemic is that organisations have come to realise that they have far greater responsibilities to their societies than amassing wealth. The Covid-19 pandemic has affected all sectors of the global economy and brought ESG issues to the fore. At the EBII Group, we believe that for emerging economies, such as those in Africa, to prioritise ESG issues, there should be an explanation of ESG through consistent definitions, standards, and practices. This would widely spread the global acceptance and benefits of ESG. Regulatory authorities have a role in promoting and enforcing common ESG standards across the continent. Also, there should be a collection and sharing of reliable ESG data by relevant institutions, which would help organisations make informed ESG-related decisions.