Moving From ESG Awareness to ESG Integration – Guest Blog by Northern Trust

Recently we’ve witnessed that Environmental, Social and Governance (ESG) investments have been growing across asset classes on the basis of stronger beliefs that they are not only ethically proof, but financially pragmatic as well. Yet ESG investments are not immune from macroeconomic trends and financial market shakes, particularly high volatility risk. Among the various themes at play in 2016, we see that climate finance has gained traction. Specifically, understanding the investment and regulatory implications of the COP21 Paris (The 21st Conference of Parties) agreement is paramount to investors globally.


Both, the already happening climate change and the commitment to its limitation to below 2 degrees Celsius, changes the investment landscape even for those investors who until recently have not been keen on this theme. The direct consequence of COP21 has been the increased demand for carbon regulation accompanied by the acknowledgement of its potential financial implications by all parties including companies, asset owners and investment managers. The Nationally Determined Contributions (NDC), in which each country agreed to publicly outline their post-2020 climate actions are indeed fostering the first step into this new reality where the world has to achieve the agreement and transitions from a culture of carbon to a climate-resilient future.


Our vision for the future is to reach a point where ESG considerations would be part of standard valuations toolkit for all investments. The challenge has shifted from a lack a data, to a plethora of information and the urgent need to move from ESG awareness to ESG integration. An underpinning thesis of ESG investment is the relevance of ESG data for the long-term health and stability of the market, therefore a focus on long-termism should then support the evolution to wide ESG integration. Post COP21, government regulation will further support this transition. Social aspects of ESG are most likely to be implemented via ethical exclusions, particularly those linked to companies’ violations of the UN Global Compact Principles. And governance has already become front of mind, with companies being fully aware of the relationship between their corporate behaviours and their market valuations. In future, we see this as a major trend being analysed by sophisticated global investors.


This blog was authored by Northern Trust Asset Managent in response to the findings of this year’s Responsible Investment Benchmark Report. You can read more about NTAM here.