With sustainable investments becoming an increasing part of the international agenda, pressure is piling on businesses to ensure they have a suitable strategy in place.
BlackRock — the world’s largest asset manager and a forerunner in sustainable investments — was last week accused of inconsistency in its ESG agenda. ESG stands for environmental, social and corporate governance, and refers to a set of standards that measure a company’s performance in areas like carbon emissions and social responsibility.
The investment firm was found to have links to an Indonesian palm oil company, which once again raised concerns around possible blind spots in the ESG investment process. But according to Singapore-based consultancy Asia Research and Engagement (ARE), there are several steps businesses can take to ensure their ESG strategy is considered and consistent.
First, businesses must set out a strong intention to “manage whatever it is that needs to be managed,” Benjamin McCarron, founder and managing director of ARE told CNBC Tuesday. That could be internal policies or external investments.
Then, leaders should set in place a time-targeted plan to meet those goals.
“It’s no good having a commitment for 2050 and expecting all of the change to happen in 2049, so there needs to be a plan which is in place and which is progressive through time,” he said.
An Acehnese worker harvests palm oil fruits at a palm oil plantation area in Kuta Makmur, North Aceh Regency.
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Next, they need to implement a transparent reporting system and have appropriate governance in place to ensure that reporting is adhered to.
Finally, businesses need to start now. “Don’t leave it too late,” said McCarron.
The advice comes as interest in ESG investments has been rising. In the first quarter of 2021, investments in sustainable funds hit a new high of nearly $2 trillion, marking the fourth quarter of gains, according to Morningstar.
However, investors should continue to exercise caution to ensure companies are acting in accordance with their claims. Institutional investors should engage in dialogue, exert their voting rights and implement shareholder proposals to make sure companies are meeting the set goals.
Meanwhile. it’s much easier for retail investors, said McCarron: “You can have whatever values you want. If you don’t want to own something, don’t own it.”