Environmental, social and governance – ESG – has been gathering pace as the valuation criteria of choice for investors. Join us as we explore just why the ‘S’ in ESG has become so crucial and how smart tech can help organisations better manage their social responsibility and become more investible as a result.
According to former Bank of England’s Governor Mark Carney, climate and ESG considerations are likely to sit at the core of future mainstream investing, with investments tailored and fiduciary duties fulfilled through better quality data on sustainability.
Investors are increasingly looking to ESG criteria when valuing and positioning their portfolios purely because it reveals data that traditional financial analysis would not usually capture.
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Why is ESG so important to investors?
Why is ESG so important to investors?
Factors not traditionally considered in valuing a business can have a significant impact, to the point where a business value can be reduced if there are negatives involved. Just think about employees’ well-being and satisfaction, data security, industrial relations and supply chain robustness.
This influence is precisely why ESG criteria have become of great worth, with ESG portfolios continually outperforming traditional ones.
In a review of 200-plus sources on ESG performance by Oxford University and Arabesque, as many as 88% of companies that focused on sustainability experienced operational performance, leading to better cash flow levels.
The markets have caught on to the value of ESG, leading to a boom in sustainable investment strategies in recent years. In 2018, the total assets committed to sustainable and responsible investment strategies in Europe was 49%, an increase of 11% since 2016.
Why should ESG ratings matter so much to businesses?
Because ESG criteria are becoming such an important consideration, it is now necessary to provide investors with a simple way to assess the business’ ESG performance.
ESG ratings, such as those standardised by the Sustainability Accounting Standards Board (SASB), are designed to assist investors in identifying and understanding ESG risks to a business. The ratings are based on publicly available information, such as annual reports and media sources, with scores awarded for each ‘E’, ‘S’ and ‘G’ factor, together with an overall score.
A business that scores well on ESG metrics is considered more prepared to handle future risks and make better use of opportunities. It would, therefore, be thought of as more investible.
Should a business score poorly, on the other hand, it could be considered an unsustainable asset by investors and, as a result, be excluded from portfolios. Eventually, if enough investors follow suit, the stock price could take a negative hit.
Because in Europe almost half of assets are managed using responsible criteria, it is vital for businesses to understand their ESG scores and take steps to improve them continuously. If they don’t, then they could fail to attract investment.
Outside of investment, ESG ratings are also a highly valuable internal benchmarking tool. They can aid decision making, boost sustainability performance, and reveal an organisation’s competitive position. Business intelligence like this has the power to transform a company and potentially pivot it to considerably higher levels of success.
Why is the ‘S’ in ESG so significant?
Social factors may seem to pale in importance compared to environmental and governance issues, which have traditionally been at the forefront of investors’ minds.
However, the health and well-being of an organisation’s workforce is a crucial influencer of its success and, therefore, investment potential.
Further, issues such as a company’s position on racial and gender equality – and how fairly it treats its labour force – are shunting brands into the spotlight in a big way and influencing investment in the process.
For example, when fashion brand Boohoo was reported to have been paying its workers just £3.50 per hour, several ESG funds withdrew investments in the company.
Movements such as Black Lives Matter and #MeToo have also enhanced focus on ‘S’ factors.
What’s more, in the wake of the COVID-19 pandemic, social factors have become of even greater importance. Now there is a genuine need for property owners and employers to consider the impact of their buildings and workplaces on the people who use them.
Social factors don’t stop at the workforce. They also extend to an organisation’s relationship with its suppliers, customers and the communities in which it operates.
Socially strong companies are considered reliable investments.
They avoid scandals, maintain a positive reputation, and attract the best talent. They also tend to be on the ball when it comes to keeping up with market trends. They also have robust, people-orientated management and talent attraction and retention structures in place.
So, it is clear to see that the ‘S’ in ESG is equally important as its acronym neighbours. But, how can a business manage and keep track of how it is performing regarding the social factors that influence its workforce’s health, well-being, and general fulfilment? The answer lies in smart tech.
How can smart tech help to manage social factors for better ESG ratings?
Smart tech simplifies the process of managing the elements within a workspace that influence employee health, well-being and experience. It also presents a valuable opportunity to gather relevant data to steer change towards a better working environment, one that ticks more boxes under the ESG’ S category.
With a smart building management system, the likes of lighting, heating, ventilation and air conditioning (HVAC), and energy usage all become fully fingertip-controllable and, more importantly, measurable.
All of these factors play a vital role in a worker’s experience.
For example, smart lighting is known to contribute to healthy buildings, which, in turn, support employee well-being.
COVID-safe measures are also a crucial social factor.
Staff need to feel safe at work, and employers have a responsibility to ensure their safety by mitigating the risk of spreading coronavirus. Smart tech can help in this respect, too, courtesy of features such as air quality assessment and management, social distancing management, automated meeting room and workstation booking, and contactless access control.
How can Smart Spaces help boost the ‘S’ in ESG?
The Smart Spaces app, fully voice-control compatible with Amazon Alexa, offers a range of features that support COVID-safe workplace measures.
It also incorporates a smart lighting control module, allowing workers to automatically adjust spaces lighting to suit their preferences.
The HVAC control module has the power to boost productivity by giving control back to the user over the room temperature.
Predictive technology-based trends can pre-emptively alter settings, and the app-based controls mean workplace conditions can be set to preferred standards even before someone sets foot in the office.
When integrated with Indoor Air Quality technology, valuable insight into the condition of the environment is made available so that permitted users can make adjustments to enhance the workplace experience.
COVID-friendly contactless, role-based access control is also a feature of the Smart Spaces app. When combined with a building management system, it means saying goodbye to lost access cards and hello to more streamlined visitor check-in procedures and security tracking.
Everything from doors and turnstiles to speed lanes and lifts can be controlled by the single-interface app.
A sense of community and togetherness is an essential social factor.
Smart Spaces is first and foremost a workplace engagement app designed to enhance work-life balance.
The platform provides a Social Wall where everyone within a building can share the latest news and community events and keep up to date with local and workplace life.
There’s also a private chat feature for private conversations and free access to engaging break time reads.
To discover how Smart Spaces could help your organisation manage and measure the social aspects of ESG and help add value to your business, you are welcome to get in touch or request a demo.