Advantages Of Compliance With ESG Rules For Companies
In general, we may categorize ESG Rules as follows;
- Various environmental issues such as; climate change, depletion of resources, waste management, pollution and deforestation,
- Social issues such as; modern slavery, child labor, animal welfare, diversity and labor relations,
- Regulatory and governance concerns such as bribery and corruption.
In this sense, governments, companies and nongovernmental organizations pay an important effort to base the responsible investment on ESG Rules with criteria such as financial reporting principles and legal compliance.
A recent Bank of America Merrill Lynch study has evaluated the reasons, why ESG Rules must be payed attention in great number of issues from climate change to quality of management and intracompany negotiations.
- It is confirmed, that in comparison with other market players, shares of companies which are in a good condition according to ESG parameters have shown 3% higher performance in last five (5) years.
- In regard to demographical data, over 20 trillion Dollars of growth in ESG funds is expected in next two decades.
- Intangible assets – assets related to reputation, brand and intellectual property – have reached a record level for S&P 500 companies. However, these intangible assets cannot be evaluated only by financial measurements, parameters for ESG Rules compliance must also be considered.
- Companies with high rate of employee satisfaction in glassdoor.com, have had approximately 5% better valuation in last 6 years than companies with low rating.
- Between 2005 and 2015, 15 of 17 bankruptcies in the S&P 500 (90%) were from companies which had poor Environmental and Social scores five years before their bankruptcies. Therefore, compliance with ESG fights against bankruptcy.
- Just like consumers’ credit scores, companies pay different interest rates in accordance with their risk profiles. Based on ESG scores, cost of debt may differ approximately 2% between “good” and “bad” companies.
For these reasons; climate change, related activities and sensibility are in the center of ESG Rules. Climate change and ESG Rules are becoming one of the priorities for investment advisors and funds, more questions are added to investor surveys and companies with higher sensibility about this issue are able to use low interest loans, provide funds easier and influence more investments.