From Patagonia’s transfer to a climate-oriented trust to the overwhelming focus on corporate responsibility for those businesses operating in Russia during its invasion of Ukraine, ESG issues are dominating commercial headlines around the world. Economic development organizations and B2B-focused firms need to stay apprised of developments in this area, so they can know which companies and which industries to target (and when).
But how is one to learn where and how they can get reliable information? Continue reading below to discover our latest tips for staying up-to-date on what’s going on in the world of ESG.
What’s ESG?
But first things first. ESG stands for Environmental, Social, and Governance. It refers to a set of criteria measuring a wide array of company attributes that impact the lives of both stakeholders and non-stakeholders. Everything from a company’s overall carbon footprint to their internal audit and financial control practices might fall under the umbrella of ESG.
(Sorry. Like we said, we’re pretty sure you already knew what ESG means, but it’s always safe to put it in there in case.)
How is ESG Performance Measured?
One of the most pressing issues facing ESG-and sustainability-focused organizations is the sheer number of benchmarks and metrics available to interested investors and industry participants. A list of the most commonly utilized resources includes:
-The United Nations Sustainable Development Goals
-Morningstar Sustainalytics
-Institutional Shareholder Services ESG
-Moody’s ESG
-MSCI ESG Ratings
-S&P Global ESG Risk Atlas
-Bloomberg ESG Data
-Sustainable Fitch ESG Ratings, Data & Analysis
Additionally, many companies – especially publicly owned firms – publish their own data regarding their ESG performance. According to McKinsey, over 90% of the public companies included on the S&P 500 index publish public-facing reports on their ESG efforts, in one form or another.
There are also country-and region-specific indexes demonstrating leadership on ESG measures. The ESG Index at Global Risk Profile, for example, shows the remarkable performance of Nordic countries (including Finland, Sweden, and Iceland) in ESG-relevant areas.
Here at Gazelle, we created our very own list, combining companies that have scored high on Sustainalytics’ ESG scores and also qualify as high-growth firms.
How Is ESG Relevant to FDI?
ESG matters to FDI professionals and the regions they represent for at least a couple of reasons.
First, the internal and external reporting on ESG benchmarks offers those in the hunt for foreign direct investment additional information they can use to narrow their search for their perfect candidates. Companies that act as exemplars of responsible corporate governance, healthy employee relations, or positive community involvement may have a particularly positive impact on the towns, cities, and states in which they choose to do business.
Who are the fastest growing ESG companies?
Second, a region may be able to offer opportunities for improvement to a firm that’s struggling in a particular area of ESG. For example, an organization encountering difficulty in hiring a racially diverse workforce might be open to expanding into a region with a suitably skilled and diverse local population.
Third, ESG is driving powerful trends in several major industries, from energy to logistics. For example, over $755 billion was invested globally into the no- and low-carbon energy transition in 2021. That number is up significantly from prior years:
The trend is consistent and obvious. Investments have increased dramatically over the last 10 years, especially in electrified transport. And what’s as notable as the marked growth in the energy transition industry is the localization of much of that investment. This chart shows where most of that money is being spent:
China is the clear leader in the energy transition economy, having received about $266 million in investments in 2021. The United States is the next most prolific recipient, topping out at $114 million.
Major Trends in ESG: Growth, Growth, and More Growth
There’s no doubt about it. The demand for products and services from companies that can credibly claim to overperform in the ESG arena has skyrocketed. More people want to invest in socially responsible firms. More people want to buy the stuff they make. More partners want to do business with them.
This chart shows the assets under management contained in ESG-focused funds in each listed country:
We believe this growth is likely to continue. The ESG umbrella is now broad enough that it includes a large number of measures and metrics closely associated with profitability, like resilient, politically secure supply chains and responsible corporate governance structures. In other words, being an ESG leader no longer means sacrificing organizational opportunities for revenue. Instead, it may encourage financial growth and operational stability.
Major Trends in ESG: A Focus on Climate
Amongst ESG-focused commentators and professionals, there seems to be a growing consensus that the ‘E’ in ‘ESG’ is taking on ever greater importance in the international conversation:
“Climate is eclipsing governance and social issues at the top of the ESG agenda, reflecting both the existential threat of global temperature rise and the race against time to rein it in.” – MSCI 2022 ESG Trends To Watch
There’s no question that the visceral and immediate impact of climate change is coming into sharper relief. With it, a new urgency is developing around global warming amongst lawmakers (see the Inflation Reduction Act in the United States, for example), activists, businesspeople, and the public in general.
Now that you know the ABCs of ESG…start targeting!
Whether you’re an economic development professional looking to land that next great opportunity for the region you represent or a B2B firm seeking new clients, odds are that you’re going to need to get familiar with ESG to make fully informed decisions. This nebulous collection of metrics, benchmarks, and ratings has a tremendous impact on the actions and behaviors of enterprises around the world. And the better you know your E’s, S’s, and G’s, the better off you’ll be. And now, here are the fastest-growing ESG Companies to get you started.