Here’s what ESG integration is really about: From an investor’s standpoint, a sustainable company is one positioned for long-term success, one whose management understands and addresses short-term risks and innovates to exploit long-term opportunities. ESG data are a means that can enable an investor to understand a company’s strategy, corporate purpose, and management quality, at scale and in an unbiased, quantifiable way.
ESG is about understanding how companies are adapting to transformational change, such as the shift to a low-carbon economy. European electric utility companies, such as RWE, missed the message that renewables should become an important part of power generation. They lost half a trillion in market capitalization as a result. Automobile manufacturers are in a race to not become the next victims by missing the electrification wave. Consumer packaged-goods companies, such as General Mills, Nestlé, and PepsiCo, are product reformulating as consumer preferences change, taking out sugar and sodium from their products, while repositioning their offerings to compete in healthier food and beverage choices.It is also about understanding how and which technology companies are best at managing data-privacy issues. In the wake of the Facebook controversy, not only shares of Facebook, but also those of Twitter, which is also highly exposed to data-privacy issues, dropped more than 10% in a day. It is about how retailers are managing a more productive workforce. As Walmart discovered, moving away from its legacy of poor labor relations, improving workplace conditions, and creating economic opportunity for its associates can improve employee engagement, leading to higher customer satisfaction and higher revenue growth.