Ted Knutson writes in Forbes:
Investors are right to consider environmental, social and governance (ESG) risks because they can impact the worth of intangible assets which make up more than 80 percent of company value, said a new report by the Society for Corporate Governance.
The intangible assets that could be subject to ESG concerns include brand names, reputation, top managers, technological know how and a loyal, well-trained and engaged workforce said the study by the professional association for internal corporate governance workers and external consultants.
In a highlight, the study pointed to wide-spread worries among companies that ESG research firm (ERF) reports can be prone to errors.
Last year, executives surveyed by the Society found 30 percent of companies were aware of factual inaccuracies in ERF reports. In addition, the poll uncovered concern over litigation and other controversies.
“(Companies) have consistently noted that ERFs sometimes do not follow litigation to its conclusion and/or do not appreciate the financial/legal implications of ordinary litigation practice (such as) establishing accounting reserves for potential damages,” the report released this week said.
The new study noted ESG investing was once limited to a small set of investors but has expanded to mutual funds, exchange-traded funds, and private equity.“
The importance, as perceived by the most influential asset managers and asset owners, has increased substantially over the last five years,” the study said.