Environmental, Social and Governance (ESG)

There has been a seismic shift in the way the corporate world views Environmental, Social and Governance (ESG) factors. ESG is no longer an incidental consideration when pursuing business and investment opportunities; today, it drives business strategy, performance and sustainable value creation. 

Concerns about the environment and social justice are driving consumer behaviour, new laws and regulations and capital allocation decisions by investors. The physical impacts of climate change on business operations, including rising temperatures, wildfires and extreme weather, have increased operational risk and the transitional effects of laws and regulations seeking to reduce carbon emissions and lower environmental impacts are forcing businesses to re-examine their approach. At the same time, changing demographics, widespread use of technology and a renewed focus on health and safety are changing the corporation’s relationships with its employees, communities and consumers.

Increasingly, companies’ organizational, financial and human resources decision-making processes are being scrutinized through an ESG lens, with potentially grave business and reputational consequences if they are not in line with current expectations of corporate behaviour.

Investor interest in ESG factors has never been higher, and it continues to grow. Any past concern that it would be a breach of fiduciary duty for pension funds and other financial investors to include ESG considerations when making plan investments is long gone. It is now generally recognized that such matters can and should be factored into investment practices. Everyone from institutional to individual investors is analyzing companies’ commitments to ESG practices before deciding where to invest. For private equity firms, ESG has become a key factor in investment decision-making and risk mitigation, and part of a strategy for generating superior long-term returns.

Considering ESG factors is no longer a “nice to have”; it is a necessity.