In particular, U.S. investors have petitioned the SEC on more than one occasion in recent years to request that firms be required to offer greater non-financial disclosure to their stakeholders. These efforts have included the desire to disclose director nominees’ ethnicity, race and gender. Other petitions made to the SEC have included requests for public companies to disclose their annual gender pay ratios.
We believe another area of concern for many U.S.-based ESG investors is in executive pay disclosure. This disclosure is of interest not only for American investors but also for investors all over the world, with many countries having developed remuneration disclosure requirements. Germany, the European Union, the United Kingdom and Canada require compensation disclosure by law. Brazil also has a strong disclosure policy, although it is not currently required by law.
Many disclosures, however, are not used equally in all industries or all countries. The lack of uniform consensus has made it easier for non-government regulators to work together to come up with approaches that work. Some regulators believe that disclosing executive pay can be an important part of a company’s risk profile. Many companies are beginning to provide this information voluntarily even prior to official regulatory guidelines being adopted. This leads us to believe that investors continue to have interest in multiple areas including diversity and compensation. As the physical effects of climate change are felt globally, many investors are divesting from companies that produce fossil fuels. In addition to the companies that have done so, we have observed others that are contemplating similar actions or have been facing increasing public pressure to do so.
Enhancement Of Analytics For ESG Data Analysis
In recent years, many organizations have begun to look at enhanced analytics in attempting to get a more complete picture of ESG data. Although ESG data definitions can be subjective according to the individual companies, we believe that many ESG investors have begun to appreciate the importance that these standards play when making choices about which companies to invest in.
Companies that hold themselves to high ESG standards historically have continued to uphold these standards no matter the political climate. Ensuring monitoring of supply chains monitoring and corporate governance have been among the various ESG related actions management teams have undertaken to potentially enhance a firm’s long-term financial success.
We believe that despite early concerns, some ESG investors have seen their investment portfolios benefit from active analysis of corporate ESG disclosures. In fact, our analysis shows that some investors view ESG investing as a possible way to protest policy changes and could prompt some investors to include companies with high ESG standards in their portfolios.
We continue to believe that many millennial and female investors have started taking advantage of ESG related investment options.
The Future Of ESG Investing
Even though potential changes are on the horizon, we believe the outlook for ESG investors still looks promising. Investors who are concerned with investing in socially responsible companies continue to have a myriad of investing options. Investing in companies that practice social responsibility may be one way to help play a role in changing the regulatory environment.