ESG integration was once a topic left to the public relations department of the average organization. Now that institutional investors are seeing how responsible integration positively affects a company’s valuation, talks of mandatory government regulation around the world are increasing.
“The pace and scope of regulation as it relates to ESG has risen exponentially since 2005,” says Michael Lewis, a Managing Director who leads the ESG Thematic Research team at Deutsche Asset Management. “Regulation has typically been voluntary, and grouped into four broad themes.”
Those themes, according to Lewis, are:
- Corporate and investor disclosure such as the EU non-financial reporting directive;
- Stewardship codes and laws which encourage asset managers to engage with investees;
- Regulations aimed specifically at asset owners to incorporate sustainability into their investment decision making;
- Regulations to shift capital to green and sustainable assets.
However, the days of the voluntary regulation practices are coming to a close. Mandated regulation will, before long, be the new global standard in relation to ESG integration.