When doing research into due diligence the other day, I came across some interesting articles that explored the relationship between investors and sustainability credentials within their portfolio. At the crux is a correlation between ESG investing and higher returns, lower risk and long-term business sustainability. But when you begin to consider how the implementation of ESG within a company can be transformative for both investor and business owner alike, how can businesses ensure they align their goals and principles to ESG measures?
When looking into ESG DD, I came across a survey by KPMG which found over half of its respondents had cancelled deals due to findings during the ESD DD process, with over two thirds of investors agreeing they would pay a premium for companies that aligned with their ESG principles. I wanted to explore the paradigm shift in investments and the role ESG consulting have on your companies ESG credentials.
80% of asset owners now have an ESG component in their investment strategies, with 68% finding significant improved returns from their portfolio’s integration of an ESG strategy. A PWC report comments on the two key forces driving ESG investment, these include:
Regulation has been a driving force behind ESG investing thanks to The European Green Deal pushing for a climate-neutral continent by 2050. The European Grean Deal Investment Plan hopes to unlock €1 trillion of sustainable investments in 2030 as a support into to the climate neutrality transition.
Asset managers have been left with a choice of how to adopt new legislation and guidance into their portfolio, either by accepting the shift and adapting to the new legislation or viewing the shift as an opportunity to establish ESG as part of their DNA to align with ambitious long-term industry trends. Both of these options are feasible for asset managers and will be approached through strategy, client offering and risk management.
Whilst asset managers shift toward ESG investing, they are also looking for a breadth of ESG compliance throughout sectors, this leaves companies who are vulnerable to stagnation the opportunity to adapt and deliver ESG prospects for investors. Through consulting an ESG expert, companies will be able to develop their ESG strategy and align with the new international investment goals.
The ESG consultancy sector is growing rapidly, with a market trajectory of 17% CAGR from 2022-2027, the ESG consultancy global market is expected to reach $16 billion by 2027. This rapid growth is expected due to a consistent uptick in ESG decision making within organisations of all sizes and sectors. This uptick in ESG adoption is due to a proven track record of benefits to the bottoms lines, improved returns and financial performance, along with investor power and global regulation.
“As we continue the countdown in this ‘decade of action’ [..] the E&S consulting sector is ideally positioned to grow in scale, scope and stature” – Liz Trew, Environment Analyst
Data from the Environment Analyst has demonstrated a pack of industry leaders exerting their ESG-driven market dominance. Perfect conditions have increased M&A deal activity, whilst PE funds have increasingly established direct funds for the ESG space to encourage sustainable investment strategies.
Green-driven changes to the regulatory environment have encouraged companies to seek ESG consultancy advice to strategically advance ESG credentials and follow new implemented legislation. In February 2022, the European Commission adapted a proposal for the corporate sustainability due diligence directive (CSDD) to necessitate strategic and operational change within global business.
The EU’s Corporate Sustainability Reporting Directive (CSRD) is transforming the way companies must report their ESG credentials. Almost 50,000 companies are subject to mandatory sustainability reporting, starting in 2024. These companies include non-EU companies who have subsidiaries in the EU. This has put pressure on companies to enforce new ESG regulations.
ESG reporting is now going mainstream as companies reporting is coming under growing scrutiny, to ensure compliance is followed companies can do the following:
By incorporating even a few of these practices into your daily business operations, the company will seamlessly align with the new ESG reporting frameworks and demonstrate its credentials. Additionally, this will propel your company’s valuation forward and incentivise investors to dedicate time to scrutinising your business. When your company is nearing the point of M&A you can be assured that your ESG DD will be a smooth and positive process, boasting your ESG performance to the new shareholder.