Policy has always been one of the major arguments to support ESG investment; the thinking is that a more ethical and responsible company will be less likely to run afoul of regulators, and therefore less likely to take hits from imposed sanctions. But rather than focus on compliance, ESG-focused institutional investors may be starting to look at the bigger picture.
According to a commentary published by MSCI, six key ESG trends are affecting institutional investors in 2017:
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- Some of the largest investors globally may take on a longer view as they consider how globalization and technological advancements could strain social cohesion and stoke populist sentiment.
- In MSCI’s view, regulatory risks will also take a backseat as investors focus on actual physical risks, such as global warming and the consequent scarcity in water from the Middle East up to the US.
- A shift toward effecting good corporate governance is also underway in Asia as investors muster shareholder clout to influence companies’ behaviour and push for change.
- ESG factors are also being considered more seriously as long-term performance indicators, with institutional investors being open to the integration of ESG signals across asset classes, markets, and factor exposures.
- With more institutions adopting the UN’s Sustainable Development Goals as a framework for corporate disclosures, they are likely to broaden their sustainable investment programs to aim for and hit these goals.
- While the surge of sustainable development projects in China, India, and other emerging markets have not impressed investors so far, these markets are likely to step up their initiatives to meet the global standards required to attract foreign capital.
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