How to benefit from ESG factors – guide for investors and their portfolio accounts. Tackling issues of implementing ESG across diversified portfolio.

Financial sector is becoming a strategic driver to force companies to take bigger actions on their environmental and social footprint. CEO of world’s largest asset manager – Blackrock, tells companies that measuring impact is no longer optional. If BlackRock does what it says it’s going to do  – the stock price of a business will depend, at least in part, on companies impact on environment and society. Measuring ESG (Environmental, Social and Governance) impact is becoming a critical factor. We wrote this article for businesses to understand how to benefit from strong ESG credentials and for investors to help to engage their portfolio accounts to monitor their impact.

Why is ESG important for portfolio companies and investors?

Both portfolio companies and investors gain from managing ESG KPIs. We  have listed the key benefits for both sides below.

Key Benefits for Portfolio Companies:

Short-term impact 

  • Improved Risk Management
  • Cost savings associated with energy, water, waste, carbon efficiency
  • Revenue growth from sales of more sustainable products
  • Driving innovation
  • Operations optimisation – by setting the target to reduce your carbon, you are actually looking at reducing operational costs and manage day to day business better

Long-term impact

  • Strengthened reputation
  • Employee engagement
  • Builds ability to win more business (become more competitive)
  • Reduce cost of recruitment –sustainability helps to attract and retain talented staff
  • Improved visibility to the portfolio supply chain
  • Increase company profile for investors

Key Benefits for Investors:

  • Optimizing Valuation of Portfolio clients
  • Investment and Reputational Risk mitigation
  • Strengthen reputation on sustainable investment
  • Lower cost access to funds

Tackling issues with implementing ESG factors

While many investors are already aware of the above benefits and “why” ESG factors are important, more and more are asking “how” to implement ESG metrics into their strategy.

Unfortunately, several surveys state that although investors are eager to strengthen their sustainability policies, they face several challenges in implementing them. Even as more companies disclose their sustainability data, the financial sector is finding that a majority of companies still fail to disclose data on “material” ESG risk factors. Sustainability reports include a lot of information but not many data points. Historically, it has been difficult for companies and investors to measure specific value generated from management of ESG factors. There is a growing necessity to enhance the link between ESG factors and financial performance. ESG data should be integrated into an economic assessment and valuation to improve investment analysis, decision-making and make it more relevant for companies and their investors.

Furthermore, increasing pressure from SWFI and Limited Partners is pushing private equity sector to be more transparent on sustainable investment practices with particular focus on KPIs and verifiable data. In response to adapting ESG reporting standards into financial sector needs, several organizations such us UN Global Compact (SDGs), GRI, SASB and TCFD are working on developing a new more investor relevant reporting standard.

On the other hand, UN Environment Program Inquiry 2016 concluded that as it stands now, investors and corporates don’t have the information and tools they need to make smart investments and monitor ESG factors of their current investments. Recent Blackrock Viewpoint* supported this statement, saying that one of the main challenges investors struggle with in the current state of ESG disclosure is inconsistent collection, management and limitations to comparability of ESG data.

Summarizing, what do investors need to make ESG factors more relevant?

  • Transparency around sustainability impact of businesses and their products, services and projects
  • Making sustainability reporting more relevant for investors:
  • Using data platforms to verify and improve the data collection process allowing better transparency to portfolio clients sustainability practices
  • Provide a clear link between ESG factors and financial performance in annual reports
  • Data needs to be provided in a comparative language. ESG is only relevant if it can be compared to a past performance, a competitor, best practice or new market development.

Portfolio companies will be the ones benefiting from monitoring their internal sustainability impact; therefore it is important to ensure that sustainability monitoring and reporting methodologies are relevant both for investors and their portfolio.

What is the “Best Practice” for portfolio companies?

  • ESG data needs to be collected, monitored and reported in efficient, transparent ways that also provides financial benefits
  • Easy and cost-effective methodology of ESG data collection to reduce manual workflow and minimize errors – investment into sustainability data platforms
  • ESG factors need to be communicated comparatively and consistently; lack of standardization must be addressed
  • Create a sustainability culture in the company by engaging employees, stakeholders and partners
  • Branding and marketing of sustainability achievements supported by quantified data in order to generate bigger value
  • Verification standard to adhere towards (process for continual improvement)

In conclusion, both investors and portfolio companies will strongly benefit from monitoring their ESG factors. Currently, most investors focus on reputational and investment risk mitigation, but in order to consider ESG factors as “must-have” strategic parts of the business and decision-making factors for investors, there is a necessity to highlight financial benefits supported by quantified, reliable, high quality data. ESG whilst important still requires more focus to create a positive impact to investors and portfolio clients.

How Turnkey Group can help?

Turnkey Group supports investors and private equity portfolio businesses by measuring and reporting their sustainability KPIs in a consistent and transparent manner. We provide investors and portfolio accounts with ESG platform that allows investors to track and compare performance of their portfolio accounts and for portfolio companies to monitor their internal ESG performance and identify cost-saving opportunities. Turnkey Group has expertise working with global private equity firms and their diversified network of portfolio companies from multiple industry sectors. Please contact us for more information at

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2017 ESG Trends to watch, MSCI
Responsible Investment Market Update, A Snapshot of Signatory Action, PRI 2017
*Exploring ESG: A Practitioner’s Perspective, BlackRock, 2016
Building virtuous circle of investor-corporate climate disclosure, Remco Fisher, ESG Magazine Issue 8 2017
The holy grail for investors: countries allying on CO2 reporting, Elena K. Johansson, ESG Magazine Issue 8 2017
Key insights for companies and investors, WBCSD and UNEP FI 2010

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