ESG investment – the new hotspot
View(s):While investing in Environmental Social and Governance (ESG) has become more popular over the last 20 years; to the millennial generation, it’s almost a prerequisite.
CSE and GRI (see box story). From left - Ms. Rubina Sen - Senior Coordinator GRI South Asia, Dr. Aditi Haldar Director - GRI South Asia and Rajeeva Bandaranaike - CSE CEO
Investors such as Tundra Fonder emphasises on ESG standards and Socially Responsible Investing (SRI). This has prompted the Colombo Stock Exchange (CSE) to promote local listed firms to adopt ESG factors in a bid to attract such foreign investors.
Tundra has US$ 150 million in its Frontier Sustainability Fund, which has invested $ 20 million (12 per cent) of the fund portfolio in Sri Lanka. SRI is growing at over 16.5 per cent a year, over twice the 8 per cent rate for other funds, according to statistics.
The CSE recently launched a manual – Communicating Sustainability: ‘Six Recommendations for Listed Companies’ to assist listed companies in addressing environmental, social and governance factors in their capital market communication.
Sustainable investors aim for strong financial performance, but also believe that these investments should be used to contribute to advancements in social, environmental and governance practices. They may actively seek out investments – such as community development loan funds or lean tech portfolios – that are likely to provide important societal or environmental benefits. Some investors embrace SRI strategies to handle risk and fulfil fiduciary duties; they review ESG criteria to judge the quality of management and the likely resilience of their portfolio companies in dealing with future challenges. Some are seeking financial outperformance over the long term. A growing body of academic research shows a strong link between ESG and financial performance, Tundra Fonder AB Founder/CIO Mattias Martinsson told the Business Times when he was in Colombo recently.
He said that 37 per cent of asset growth during 2012-2016 came from SRI assets and that SRI assets grew by twice the rate of conventional assets during 2012-2016.
“The growth will accelerate.” He added that since autumn 2016 all Tundra’s funds are screened for violations of international conventions (guidelines from UN Global Compact, OECD, and ILO) and they focus high on this aspect.
Tundra has an in-house ESG research team and external screening consultant. There’re two dedicated analysts working exclusively with ESG analysis where they communicate with all portfolio companies and focus on a systematic, scientific and thematic approach.
Analysts say that foreign investment can be driven by ESG and that specifies the underlying mechanism of foreign investors’ stock picking behaviour. They say that ESG compliant firms can attract foreign investment.
According to the Global Sustainable Investment Alliance (GSIA), assets valuing over US$ 21.4 trillion have incorporated ESG concerns into their investment selection and management globally, representing 30.2 percent of the total assets under management.
The CSE guide is meant to help companies on how to approach the topic of sustainability when they incorporate it into their capital market communication. CSE in collaboration with the Global Reporting Initiative (GRI) hosted a workshop on Sustainability Reporting and Corporate Social Responsibility last Thursday.
The event, which was exclusive to representatives of companies listed on the CSE, addressed the business case for adopting sustainable business practices in listed entities and provide insight into monitoring, managing and communicating sustainability related performance effectively.
| CSE and GRI | |
| The Colombo Stock Exchange (CSE) recently formalised an arrangement with the Global Reporting Initiative (GRI) to provide guidance to listed companies on ESG disclosures in Sri Lanka. Director, GRI South Asia Dr. Aditi Haldar, and CEO CSE Rajeeva Bandaranaike were present at the event.GRI is an independent international organisation that has pioneered sustainability reporting since 1997. GRI helps businesses and governments worldwide understand and communicate their impact on critical sustainability issues such as climate change, human rights, governance and social well-being. The GRI Sustainability Reporting Standards are developed with true multi-stakeholder contributions and rooted in the public interest and are the first and most widely adopted global standards for sustainability reporting, a CSE media release said. GRI and the CSE will jointly undertake surveys and studies among listed companies and investors to gauge their knowledge, determine their capacity on sustainability reporting and identify the types of technical assistance and capacity building needed to improve awareness and institutionalise sustainability reporting within their organisations, it said. CSE and GRI will also collaborate to conduct workshops, seminars and other forms of training for representatives of listed companies. Commenting on the collaboration, Mr. Bandaranaike stated “As a member of the United Nations Sustainable Stock Exchanges (SSE) initiative, the CSE actively engages in its commitment to promote improved ESG disclosure and performance among listed companies. Through our collaboration with GRI, the CSE intends to foster greater awareness among our listed entities on the fact that ESG practices can be as beneficial to companies as they are to investors and that a strong focus on ESG can provide a basis for strong business results.” |