Environmental, social, and governance (ESG) risks have taken a strong hold in the developed investing space. Previously, the concept had resided in the domain of “do gooders” and “tree huggers” seeking to make a better world. So what has changed so much that it is now taking root in mainstream investing? By and large, ESG has been able to make the move because of serious concerns backed by legitimate data around environmental degradation worldwide, its impact on humanity, communities, and countries, as well as its economic impact in the form of damage to properties and loss of man hours in the wake of environmental disasters that are coming at a pace not seen before. The damages extend to business activity, leading to loss of revenues and increasing the cost of insurance.
As the thesis around the reining in of environmental damages with a framework of a 2 degree Celsius alignment for climate change has spread, it has behooved large institutional asset owners with large monetary assets at their disposal to become part of the movement. Since no government can afford to finance this mammoth effort alone, it is increasingly apparent that private funding has to step up in innovative ways.