ESG factors: essential to investment
Disclosure of Environmental, Social, and Governance (ESG) factors is an international business investment standard. European companies with more than 500 employees must disclose ESG factors in order to operate.
In the U.S., the Securities and Exchange Commission has the authority to require disclosure of ESG factors when they are material to investors. Those ESG factors could affect the company’s bottom-line.
As long-term risks are recognized, the scope of investor concern broadens. For example, extreme weather events, population growth, and sea-level rise all affect a company’s ability to perform. In fact, recent extreme weather events reduced earnings at 73 major U.S. companies. Corporate lawsuits align with those concerns. The current tally of climate change litigation has reached 1,000. Supply-chain disruption, often attributed to climate change, has increased 29% since 2013.
Although many of the largest U.S. public companies disclose ESG factors, it is voluntary and self-reported. Without a regulated framework for ESG disclosure, individuals looking to invest in companies with strong risk management capacity, or those that are in alignment with their values, should evaluate companies with an ESG framework in place that provides information that is relevant, reliable, and useful for decisions.