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The Growing Importance of ESG Ratings for Issuers

 

The Growing Importance of ESG Ratings for Issuers

Institutional investors are increasingly integrating environmental, social and governance (ESG) and climate considerations into their investment decision-making processes. In particular, for those interested in achieving long term value creation, ESG performance may be viewed as an indication of management quality. Evidence of this shift toward ESG integration can be found in the number of asset owners and asset managers that are signatories to the UN Principles for Responsible Investment (PRI) – a set of principles that outline specific investor commitments to ESG integration. Now in its eleventh year, the PRI has garnered over 3,400 signatories representing more than $100 trillion in assets under management, including many of the largest global asset owners and asset managers.1

In addition to using ESG research and ratings to inform investment decisions, institutional investors are also using ESG research and data to inform engagement strategies, through analyst meetings with companies and through more formal shareholder engagement processes. For example, in the 2020 U.S. proxy season more than 400 ESG shareholder resolutions were filed, many with a focus on climate change and workforce issues like human capital, talent, and diversity.2

Given these trends, it has become ever more important for publicly traded companies to understand not only the ESG research and ratings that institutional investors are using to inform their investment decisions and engagement questions, but also the ESG performance of industry peers and competitors.

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1https://www.unpri.org/pri/about-the-pri as of October 2020  

2https://corpgov.law.harvard.edu/2020/08/23/four-esg-highlights-from-the-2020-proxy-season/

3ESG data, research and ratings are produced by MSCI ESG Research LLC and are used as an input to the MSCI ESG indexes, calculated by MSCI, Inc.