The concept of ESG – Environment, Social and Governance – is slowly garnering interest among conscientious, value-based investors who wish to tie in together their ethics and values alongside a financial benefit. It’s based on a set of standards and premised on three main factors: environment, social, and governance. It also brings to the forefront a range of criteria that measures the overall sustainability of an investment, allowing investors to make purpose-driven decisions, in areas that resonate with their beliefs.
Unpacking opportunities in ESG relies on several factors: availability of data, the demand for greater transparency, public awareness, and the factoring of ESG criteria into mainstream investment. However, managing and understanding the factors that are material to a business or sector can prove difficult. And navigating how to interpret whether an ESG issue translates into what is financially beneficial requires a certain amount of agility.
Rachel Ball, Head of Policy, Advocacy & Campaigns at Oxfam Australia, provides some insight into how NGOs can help unlock opportunities in the areas of Environment, Social, and Governance (ESG).
She notes the potential that NGOs, like Oxfam, have in identifying ESG risks: “Investors are influenced by a range of sources, including media reporting and firms that rate and rank companies by ESG indicators, as well as NGO insights and campaigns that draw on deep subject-matter expertise and relationships with impacted communities. [The] work that an organisation like Oxfam does to protect human rights and the environment is at the heart of ESG considerations. We identify and publicise systemic issues and company and sector-specific risks that are critical to ESG analysis,” Rachel said.
NGOs play a pivotal role in the society and through campaigning and strategic partnerships, NGOs can hold companies accountable for the consequences of the negative footprint they so often leave behind and coax enterprises into developing practices that are both moral and ethical.
“The campaigning work that NGOs like Oxfam are doing is important in the context of ESG. We are in touch with workers and communities and see human rights violations in real-time, so our reporting can inform investors’ decisions,” Rachel added.
Many of the standards that we now consider to be good corporate behaviour have been developed on the scrutiny of NGOs seeking accountability in various areas of corporate influence. Over the last few years, Oxfam has worked on a number of different issues (such as tax havens, the rights of workers in garment supply chains or communities impacted by mining operations) and while ESG does have the potential to benefit the economy as a whole, Rachel cautions on viewing financial instruments such as ESG as a panacea or a one size fit all solution to drive change.
“The potential for ESG is immense and NGOs should look at how they can influence the financial sector and leverage the growing importance of ESG. However, this is not an adequate substitute for the role of governments,” Rachel said.
“Legislation and policy are the vehicles through which governments drive change and while ESG can provide corporates with a moral compass, we need the interplay of government, the private sector and civil society to build a more human economy,” Rachel added.