Mozaffar Khan, George Serafeim, and Aaron Yoon, вЂњCorporate sustainability: First evidence on materiality,вЂќ The Accounting Review, November 2016, Volume 91, Number 6, pp. A strong ESG proposition correlates with higher equity returns, from both a tilt and momentum perspective. The overwhelming weight of accumulated research finds that companies that pay attention to environmental, social, and governance concerns do not experience a drag on value creation-in fact, quite the opposite (Exhibit 1). So does the level of business performance. The magnitude of investment flow suggests that ESG is much more than a fad or a feel-good exercise. The acceleration has been driven by heightened social, governmental, and consumer attention on the broader impact of corporations, as well as by the investors and executives who realize that a strong ESG proposition can safeguard a companyвЂ™s long-term success.

Global Sustainable Investment Review 2018, Global Sustainable Investment Alliance, 2018,. Global sustainable investment now tops $30 trillion-up 68 percent since 2014 and tenfold since 2004. Of a piece with that emerging zeitgeist, ESG-oriented investing has experienced a meteoric rise. Henisz, Corporate Diplomacy: Why Firms Need to Build Ties with External Stakeholders (Routledge, November 2016) John Browne, Robin Nuttall, and Tommy Stadlen, Connect: How Companies Succeed by Engaging Radically with Society (PublicAffairs, March 2016) and Colin Mayer, Prosperity: Better Business Makes the Greater Good (Oxford University Press, January 2019). The stakeholder approach is elaborated upon in Witold J. See вЂњStatement on the purpose of a corporation,вЂќ Business Roundtable, 2019,. The US Business Roundtable released a new statement in August 2019 strongly affirming businessвЂ™s commitment to a broad range of stakeholders, including customers, employees, suppliers, communities, and, of course, shareholders. Thinking and acting on ESG in a proactive way has lately become even more pressing. Indeed, excelling in governance calls for mastering not just the letter of laws but also their spirit-such as getting in front of violations before they occur, or ensuring transparency and dialogue with regulators instead of formalistically submitting a report and letting the results speak for themselves.Д®SG-oriented investing has experienced a meteoric rise-global sustainable investment now tops $30 trillion. Our focus is mostly on environmental and social criteria, but, as every leader knows, governance can never be hermetically separate. For example, social criteria overlaps with environmental criteria and governance when companies seek to comply with environmental laws and broader concerns about sustainability. Just as ESG is an inextricable part of how you do business, its individual elements are themselves intertwined. Every company, which is itself a legal creation, requires governance. G, governance, is the internal system of practices, controls, and procedures your company adopts in order to govern itself, make effective decisions, comply with the law, and meet the needs of external stakeholders.Every company operates within a broader, diverse society. S includes labor relations and diversity and inclusion. S, social criteria, addresses the relationships your company has and the reputation it fosters with people and institutions in the communities where you do business.Every company uses energy and resources every company affects, and is affected by, the environment. Not least, E encompasses carbon emissions and climate change. The E in ESG, environmental criteria, includes the energy your company takes in and the waste it discharges, the resources it needs, and the consequences for living beings as a result.

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