But there remain reasons to be cautious on the ESG front.
Supply-chain sleight of hand still frequently greenwashes environmentally harmful business practices. Some of Asia’s top-performing sovereign debt also owns the region's highest carbon footprint. And countries equivalent to 70% of the global economy lack sufficient green stimulus measures to achieve globally pledged carbon-neutrality goals. So should individual, institutional and sovereign investors really be jumping so enthusiastically on the sustainability bandwagon?
In all these cases, the answer appears to be “yes”.
The days of being able to hide key ESG performance facts from investors are numbered, with availability of quality data rendering businesses increasingly transparent — from product sourcing to supply-chain sustainability, from forced labor risks to executive pay. As demand for sustainable investments grows, so will the amount of time and resources dedicated to holding companies responsible for their goals and weeding out those who merely pay lip service to ESG.
Meanwhile, as global pressure mounts to cut emissions, high-emission countries may soon pay a price if they fail to make sufficient progress. In Australia, for example, about one-third of the economy is exposed to disruption if key trading nations choose to source cleaner materials elsewhere — which could cause an economic contraction of 6% over the next five decades and counteract the attractiveness of its sovereign debt as responsibility-driven investors find sources ESG-compliant value with equivalent or higher yields.
Finally, there are significant geopolitical incentives for orchestrating an effective post-pandemic green recovery strategy. Climate announcements from G-7 countries without concrete measures to support emerging markets will further disconnect the group from the rest of the world and increase China’s influence through its global Belt and Road initiative as developing nations look for greater support. ESG commitments — and adherence to them — are set to be some of the Group of Seven’s most influential allies.
This report examines these ESG considerations in depth. Read on for the full picture of our research on why green investing matters ethically, financially and geopolitically.
