The role of ESG in attracting investment: what do investors expect from modern companies?
Authors of the article: JUDr. Pavel Staněk, MBA, Mgr. Vendula Korčáková, ARROWS (office@arws.cz, +420 245 007 740)
In today's investment world, it is no longer enough to have a strong financial plan or an innovative product. More and more investors are looking at how companies approach environmental, social and governance (ESG) responsibility. Why is ESG so important, what do investors expect from it and how can companies adapt to this new reality?
Why is ESG key to investment decision-making?
According to a 2021 PwC survey, nearly 80% of investors surveyed said ESG factors play an important role in their investment decisions[1]. This trend is confirmed by the BNP Paribas 2023 report, which highlights the increasing importance of ESG in institutional investors' capital allocation[2]. This data clearly shows that ESG factors have now become a key indicator of the long-term sustainability and performance of companies. Why? Because ESG is no longer just a "moral choice" but a real indicator that investors rely on to assess risks and opportunities.
For example, in the area of Environmental, E, investors are interested in how a company reduces its carbon footprint, manages waste or manages its resources efficiently. Companies that implement strategies to achieve carbon neutrality or invest in renewable resources are perceived as more attractive. The social factor (Social, S) is equally important. Investors look at how a company treats employees, promotes diversity, inclusion and equal opportunities, but also how it contributes to the development of the communities in which it operates. The Governance (G) factor reflects the degree of transparency and ethics in the company's governance, including the fight against corruption, effective risk management and the structure of decision-making processes.
Companies that have high ESG scores not only attract more investment, but also show better resilience to crises such as natural disasters, changes in legislation or sudden market fluctuations.
How can companies succeed?
To achieve a high ESG score, companies need to take a proactive approach. Below are some key steps that can help them.
1. Create an authentic ESG strategy
The first step is a detailed analysis of your own processes and areas where the company can make meaningful improvements. For example, switching to renewable energy sources, implementing technologies to reduce water or waste, promoting gender equality, or implementing a transparent decision-making system. It is important that the strategy is not merely declarative but based on concrete actions and objectives.
2. Obtain certifications and comply with international standards
Certifications such as ISO 14001 (environmental management) or SA8000 (social responsibility) can help companies increase their credibility. Also, adherence to international standards such as GRI (Global Reporting Initiative) or SASB (Sustainability Accounting Standards Board) is a signal to investors that a company is serious about its ESG strategy.
3. Report regularly and transparently
Investors expect access to regular and verifiable data. Companies should publish annual ESG reports that include metrics and progress towards goals. Transparency is key because it helps prevent accusations of greenwashing, a common problem where companies declare sustainable practices but the reality is different.
4. Involve all levels of the company
An ESG strategy must be implemented at all levels - from management to the rank and file. Training and engaging employees in ESG goals can have a positive impact on company culture and increase employee loyalty.
5. Monitor and adapt the strategy
ESG is not a static area - trends and expectations are constantly changing. Companies should regularly monitor developments in legislation, technology options and investor priorities to adapt their strategy to meet current needs.
ESG as a competitive advantage
Firms that incorporate ESG into their operations not only gain investors but also a significant competitive advantage. In an environment where sustainability and accountability are increasingly determined by the preferences of customers and business partners, a well-defined ESG strategy can be the difference between a mediocre and a successful business.
For example, companies that invest in green technologies or promote sustainability-led innovation have better access to public procurement and subsidies. Customers are also increasingly making decisions based on a company's values and philosophy, giving businesses with an authentic ESG strategy a clear advantage.
Companies that demonstrate a long-term commitment to sustainability are perceived as innovative, reliable and ready to face the challenges of the future. This confidence not only strengthens their position in the market, but also creates an edge over competitors who have not yet incorporated ESG into their strategy.
Conclusion
Integrating ESG into corporate strategies is not just a trend, but a necessity. Investors are increasingly placing a premium on long-term sustainability and responsibility, putting pressure on companies to take action in this area. A well-defined ESG strategy not only improves investor relations, but also strengthens a company's resilience and competitiveness in a rapidly changing world.