ESG investment

ESG investment has been discussed as a key trend.

 

Meaning of ESG investment is, "Investments that provide funding for those companies which have a coporate strategy for sustainable society and steadly deal with the issues in environment, society and governance. Those investments for companies concerning with social responsibility are known to be stable even during financial crisis or recession, as in these days under Covid-19."

The history of ESG investment started in 2000 in UK when the British government changed its law on pension. In the law, it is required to make the strategy of investments public and show if it is responsible for environment and society. In 2002, London Principal was made public, saying 7 principles of sustainable investment. Those became a concrete action guideline for ESG investment.


Then the UN declared PRI(Principal of Responsible Investment) in 2006 to the institutional investors and it became a global scale.

In order to invest responsibly, investors need to know objective datas: how much are those companies concerned with environment, society and governance. For that, information must be accessible.

 

Turning point for the open access to the company information was the financial crisis in 2008. Vulnerable governance that might cause serious damage for stock holders was gained attention and people realized the necessity of making a standard for accounting that would lead to sustainable investment and different way of value creation. IIRC(International Integrated Reporting Council) was found in 2011, and the Framewprk was added in 2013, companies began showing those integral reports.

When in 2015, Paris Agreement was signed, people paid more attention to the risk of climate change and the financial sectors started asking for the clearness of risk management related to climate change to those companies. Therefore G20 requested to FSB(Financial Stability Board) for creating a standard for those information concerned with climate change. Since TCFD(Task Force on Climate-related Financial Disclosures found in 2017) showed the way to visualize infuence of risk and opportunity of climate change on finance, EU, United Kingdom, Canada, France, China, United States and Japan gradually started adjusting their own structure of disclosure of information to the one of TCFD.  Now, the standard of ESG investment is on the way to be set on a global level.

By the way, TCFD also refers to the regulation change as a risk of society moving towards low carbon status. This directly affects business activities so it is a must to collect information of regulatory changes without delay. Those regulations could be as such: to regulate activities that accelarate climate change or to promote activities that mitigate climate change.

TCFD makes refference to climate-related risk that an organization must explain if it considers essential conditions for the existing and coming regulations on climate change(ex: Limit amount of greenhouse gas), and any other factor which could be related. Also it recommends that an organization disclose governance of if it gives climate-related responsibility for the managers or the commitee.  

RuleWatcher PRO and RuleWatcher Enterprise provide such precious information on the rulemaking trend of climate-related regulations for businesses now facing the global pressure of disclosure of governance and risk management. 

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