What is ESG?
ESG investment refers to companies and investments which focus on environmental, social, and corporate governance issues. For example, would environmentally conscious investors rather invest their money in oil companies, or would they rather invest their money in companies involved with wind-farm infrastructure?
Why is it important?
ESG investment can be said to be a movement. Considering the example above, you can see why. The ‘E’ of ESG stands for Environmental considerations. Some investors feel it is no longer justifiable to invest in polluting activities anymore and would rather put their money into the emerging ‘Green Economy’. Not only is this movement less ‘guilt free’ but it reflects a forward-thinking approach to investing in light of the UK’s Net-Zero targets.
The ‘S’ of ESG focuses on social considerations. These are wide-ranging and could include anything from the #metoo movement to the Gig Economy to the Black Lives Matter movement. Focusing on the Gig Economy as an example, these considerations help explain Deliveroo’s poor performance when listing on the London Stock Exchange. Large institutional investors were simply not willing to back the business model of Deliveroo, which rests on the shoulders of Gig Economy workers who are typically associated with poor working conditions and precarious working relationships. The recent Uber decision in the Supreme Court shed some light on these issues and contributed to Deliveroo’s poor performance in their initial public offering (IPO). The institutional investors were not willing to back Deliveroo’s business model, given that it rested on the shoulders of so many Gig Economy workers.
Despite the argument that Gig Economy work offers flexibility to balance work and childcare, which is of great benefit to women, the Gig Economy fails to adequately tackle inequalities. In practice Gig work is unpredictable, low-paid and precarious. It puts women in a position where they simply cannot ignore a ‘Gig’, even if it is at unsociable hours. Rather than relying on ‘Gig’ work to help bridge the Gender Pay Gap society must look to more regulated and secure means to help women, such as increasing flexible working opportunities in more secure forms of employment.
The ‘G’ of ESG stands for Governance, or corporate governance. The UK Corporate Governance Code lists a number of core aspects of good corporate governance. One of these includes having effective whistleblowing procedures. Effective whistleblowing procedures is one of the ways companies can be held to account for their actions, whilst protecting the employees who speak out and voice their concerns.
Why do you need to know about it?
ESG considerations are becoming increasingly significant in business’ decision-making. You need only look at the importance placed on ‘diversity in the workplace’ on almost every large company’s website. Large entities are facing inwards and outwards pressure, from employees and stakeholders, to take ESG considerations seriously. Their reputation and survival depend on it. Look no further than impact of Black Lives Matter, the #metoo Movement and the negative connotations with Gig Economy work.
YOU need to know about ESG because these socio-political issues are increasingly becoming the same commercial considerations companies are facing. The line is becoming blurred between social and commercial issues. Therefore, by continuing to invest time and effort in these societal issues, the entire commercial future of the largest corporate entities can be reshaped. Afterall, as the Uber case has shown, a small fish can make a big splash.
I am an Employment Paralegal and aspiring solicitor. I am currently studying the LPC and in my spare time I enjoy play tennis.