Investor focus on environmental, social and governance (ESG) issues has intensified in recent years, and institutional and retail investors are now considering ESG factors in their investment strategies. To take advantage of this shift, Nasdaq launched an ESG Advisory Program, which helps companies analyze and formulate an actionable ESG strategy to attract long-term capital and enhance value creation.
With investors evaluating some non-financial metrics along with more common financial ESG metrics, a number of companies have been incorporating ESG-related initiatives into their business strategy. Those companies can further leverage ESG to create value by building a foundational program with critical ESG metrics as a means to communicate clear objectives to the investment community.
The ESG Advisory Program, which is led by a consultative group of subject-matter experts, say that intangible assets, such as patents, branding, innovation and employee satisfaction, drive valuation. These assets now comprise up to 84% of companies’ market value, highlighting the measurable impact non-financials can have on a company’s valuation.1 Sustainable companies have also been found to be less risky – the most sustainable companies are able to avoid tail-risk events, which is attractive to long-term investors.2
Investor awareness surrounding ESG has grown as the movement spread across the globe: ESG has been part of the business culture in Europe for many years, but in the last few years, U.S. companies have started incorporating ESG factors as investors put more money behind them. The ESG Advisory Program says in global ESG there are about $31 trillion assets under management, which is a 34% increase since 2016.
By establishing a robust, integrated strategy, companies can attract this growing pool of investment capital. That said, because of the significant shift in assets allocated to ESG, there is greater importance for companies to report metrics to investors, establishing benchmarks and measuring progress, developing frameworks and scoring vendors, among other steps.
Nasdaq’s ESG Advisory Program, which offers three tiers of support, can create an ESG program that best suits a companies’ needs and provides guidance on the utility, effectiveness and influence of the various data providers and ESG reporting frameworks. In turn, companies are better positioned to capture ESG-focused capital and the investors incorporating ESG metrics into their investment decisions.
“Our ESG advocacy goes beyond performance measurement and disclosure guidance. We want to help companies master this part of their business. Our ESG Advisory Program does so by providing real-world intelligence, insight and guidance,” said Evan Harvey, head of Sustainability at Nasdaq.
For more information, click here.
1 Ocean Tomo, LLC, January 2015
2 BAML, 2019 3 GSIA, 2019
3 GSIA 2019