ESG Investor Motivations

According to the 2022 Kearney Foreign Direct Investment Confidence Index® investors are motivated on pursuing ESG commitments. With 94% of investors saying that their companies have already developed an ESG strategy and 89% mentioning that they view their company’s ESG commitments as a source of competitive advantage. Which leads to an interesting point, that if everybody has a strong ESG strategy then no one will have a competitive advantage, indicating that the top performers in the market will be the ones who do not stand but continually improve and iterate as they progress along their ESG journey. Purely documenting your ESG strategy is soon not going to be good enough.  

Interestingly, only 35% of investors said their companies have fully implemented their ESG strategy. Highlighting the existing gap between intention and action that companies may need some assistance with over the coming years. This will inevitably close as ESG market understanding matures and due to the market pressures mentioned above.  

In addition, investors in the Kearney study cite improving productivity, increasing cost efficiencies and improving supply chain issues as the leading factors driving their ESG commitments as compared to factors such as mitigating climate change and boosting employee morale. This highlights the shift in the market narrative around ESG from esoteric philosophical discussions to more tangible financial impacts on companies. 

This should further drive the market for ESG and will allow better measurement and reporting around the risks (and opportunities). As a side note, it may even allow us in the valuation professional to finally have a structured and well-grounded response to a consistent question posed to us by our clients...."How do ESG factors impact the value of my investment?" 

If you have any questions on ESG or would just like to have a chat on the topic feel free to reach out. I have said more on the topic of ESG and its potential impact on businesses in a podcast which I invite you to listen to 👉 Eight On Air Podcast