Evolving regulatory requirements and the pressure to deliver sustained returns in an extremely competitive environment has led investors to increasingly monitor extra-financial factors alongside financial performance. The integration of environmental, social and governance (ESG) in investment decisions has moved from a ‘nice to have’ to a basic requirement for many asset owners. Asset managers are held accountable by their clients to evidence how they use ESG to identify opportunities, manage risks and have an impact.
Moreover, for investors, stewardship is no longer just about voting. It means monitoring and engaging with companies on strategy, risk management, capital structure and corporate governance.
For companies, the challenge is to understand how each investor exercises their rights and responsibilities.
Boards and management teams are now under constant pressure to demonstrate how their strategic decisions aim to create value for stakeholders while reducing their negative externalities. Failure to effectively communicate the long-term impact of those decisions makes a company more vulnerable to threats posed by investors, competitors, and other market participants.