After The Pandemic: ESG Investing Trends For 2021 And Beyond
While widely recognized, ESG is an umbrella term that often means different things to different people. But at its core, ESG references environmental, social and corporate governance factors that provide a framework for investors seeking to invest in companies that are creating solutions to the challenges we face in today’s world.
The global pandemic has disrupted just about every facet of our lives and exposed many shortcomings in our economic and social systems. By extension, the pandemic has also had a profound impact on ESG investing, as there is now a heightened sense of awareness and urgency to combat climate change and social inequality. Despite the challenges, however, there are also significant opportunities for ESG investors, says John Tennaro, the head of ESG and impact investing at CIBC Private Wealth, US. There is a growing demand for solutions that have the potential to lead to positive change, as we look to rebuild our economies and communities on stronger foundations.
A focus on diversity, inclusion and social responsibility
The pandemic highlighted the need for enhanced diversity and inclusion, as well as social responsibility in local communities. Looking ahead, John says there will be a stronger focus on the social element of ESG as a result.
He also believes that there will be more attention on corporate governance practices as we come out of the COVID-19 crisis. Companies and their leaders are increasingly being held accountable for corporate practices that promote good stewardship. Having an inclusive institutional framework in place to foster multi-stakeholder dialogue and cooperation is now often seen as vital to ensuring good governance and compliance practices.
Better data is needed for improved transparency and ESG integration
Traditional financial models typically rely on the past to guide the future. However, many of the challenges we face today are unprecedented.
In addition, ESG data can be inconsistent—composed of a patchwork of reporting frameworks that make it difficult to collect and compare. The quality and quantity of ESG data, however, continues to improve as regulators around the world are facing pressures to address the lack of standardized data and definitions.
Uniform data requirements will make it easier for companies to report on progress toward their ESG commitments and goals, and for market participants to identify, compare and act on ESG risks and opportunities.
The ESG framework
ESG investing is often associated with dividing companies between those that are good and those that are bad, but that’s not what ESG is. Instead, ESG is a framework that helps investors understand a company better by allowing them to gather insights into the way a company behaves, and how it acts, reacts and adapts based on various ESG factors.
Identifying the ESG issues that are relevant for a particular company can help investors assess how well a company could navigate ESG factors, which may result in better risk management and investment decisions.
CIBC Private Wealth’s Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation. Listen to the podcast on ESG investing trends here. There, you will also find other informative podcasts that are designed to help rising professionals steer through their personal financial journeys.