Responsible investing: The state of ESG - Part 1
29. November 2021 | Medienmitteilung

Responsible investing: The state of ESG - Part 1

From the UN to the EU to authoritative business associations in Germany, organizations are addressing the principles of responsible investing. Increasingly, it is becoming apparent that demonstrating corporate ESG compliance is becoming the biggest challenge.

As recently as in the 2000s, investments in companies with environmental and social principles were not considered very profitable. Those who invested in such companies frequently did so as a commitment to these values.

It took another good thirty years before a somewhat binding understanding of values in the global economy emerged. In 2005, UN Secretary-General Kofi Annan initiated a process that would lead to the development of a universal set of values. This gave rise to the UN Agenda 2030, which was adopted by member states in 2015.

In the meantime, however, a number of global players in the investment business had also addressed the same issues. The rather general rules of CSR were specifically adapted to all parties involved in investments, giving rise to the now common acronyms ESG (Environmental, Social, and Governance) and SRI (Socially Responsible Investment).

Starting in 2006, the PRI (Principles for Responsible Investment) initiative, a global investor network supported by the UN, developed the terms and summarized them in six principles:

  1. We will incorporate ESG issues into investment analysis and decision-making processes.
  2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
  3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
  4. We will promote acceptance and implementation of the Principles within the investment industry.
  5. We will work together to enhance our effectiveness in implementing the Principles.
  6. We will each report on our activities and progress towards implementing the Principles.

To date, more than 1,200 signatories worldwide have joined the UN PRI initiative, managing (as of 2019) $80 trillion in assets.

In 2012, the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety issued a guide entitled “Sustainable and Responsible Investment” on the six principles of the UN PRI. Thus, the overarching issue of CSR had arrived in the German investment sector.

BVI, the German Investment and Asset Management Association, also issued its “Guideline for Responsible Investment” in 2012, which was subsequently adopted by the association, which currently has 118 full members. The resulting codes of conduct include the information to clients whether the relevant member (voluntarily) adheres to these guidelines. Providers who fail to do so undertake to make the reasons transparent to their clients.

Meanwhile, players in the financial sector around the globe are looking at further specification; driven above all by the climate crisis and the desire to end discrimination against people on the basis of their gender, ethnic origin, and religion. A key driver could be the 2019 “European Green Deal,” which is intended to lead to Europe being CO2 neutral by no later than 2050; in the EU’s view, sustainable finance will play a key role in this endeavor.

The 2020 European Green Deal Investment Plan states, in substance, that the Plan will mobilize at least EUR 1 trillion in sustainable investments over the next decade by creating a framework for private investors and the public sector for the transition to a carbon-neutral, green, competitive economy.

It is becoming increasingly apparent that the greatest challenge will be the ability to prove ESG conformity of companies and projects. Rules for appropriate reporting are therefore urgently sought, a challenge that is currently being addressed by two EU working groups and the relevant supervisory authorities in the EU member states. Specific results are expected in 2021 and will be discussed in the second part of our article series “Responsible Investing: The state of ESG.”

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