With rising requirements for environmental, social, and governance (ESG) and climate change disclosure, investors demand that investment firms be transparent throughout their process. To avoid the perception of greenwashing, investment firms and funds must certify to the market that their ESG commitments are trustworthy and valid.
As of the end of 2022, some $2.5 trillion in assets worldwide were considered “sustainably” managed, according to Morningstar; this figure is estimated to grow to $33.4 trillion by 2026.
Investors who invest sustainably want an investment or fund provider with unique stewardship qualities for a long-term dialogue with companies.
Regardless of one’s views of ESG, governance is critical to ensuring that investments, investment managers, and firms do what they say they are doing, following rules and regulations and not misleading regulators or clients.
Transparency and accountability: Firms that communicate their ESG policies and practices demonstrate transparency and accountability to their stakeholders, including investors, customers, employees, and the broader public. By disclosing their ESG activities, companies can build trust and credibility with their stakeholders.
Risk management: Proper ESG communication can help companies identify and manage risks related to environmental, social, and governance issues. By proactively disclosing their ESG activities, companies can identify potential risks and take action to mitigate them in time.
Proper ESG communication supports reputation management: It can help companies enhance their reputation and brand image. By showcasing their positive ESG activities, companies can differentiate themselves from competitors and attract customers and investors increasingly concerned about sustainability and social responsibility.
Proper ESG communication positively affects regulatory compliance requirements: Investment firms that fail to disclose their ESG activities may face legal and reputational consequences.
To summarise, ESG communication is essential because it helps companies build trust and credibility with stakeholders, identify and manage risks, enhance their reputation and brand image, and comply with legal and regulatory requirements.