ESG: The importance of conduct, culture & ethics

As investors increasingly focus on environmental, social and governance (ESG) factors in their investment decisions, the role of conduct, culture and ethics in driving those strategies becomes more important. Recent high-profile corporate scandals have brought to light the importance of having strong ethical standards and a positive corporate culture in order to create sustainable value for shareholders. In this blog post, we explore the role that conduct and culture play in ESG strategies and discuss some of the key considerations asset managers should keep in mind when implementing these.

Social responsibility

One of the key pillars of ESG investing is social responsibility. This encompasses a broad range of issues, from tax practices and anti-bribery policies to employee relations and diversity & inclusion programmes. While there is no universal definition or framework for measuring social responsibility, many investors use publicly-available data on these topics to make investment decisions. However, recent scandals at companies like Wells Fargo and Boohoo have shown that relying solely on publicly-available data can be dangerous. In order to get a true picture of a company’s social responsibility, asset managers need to look beyond the numbers and focus on how the company’s internal culture and values align with its external communications.

Shared values and reputation

In today’s business world, reputation is everything. A company’s reputation can make or break it, and one of the most important factors in maintaining a good reputation is ensuring that integrity and ethical behaviour are front and centre in all decision-making. Values-based decision-making and collaboration are essential in mitigating reputational risk and ensuring that any negative impacts are minimised. Integrity and ethical behaviour must be more than just words on paper; they must be reflected in every decision made, at every level of the organisation, in order to have a measurable impact.

Responsible stewardship and active engagement to mitigate risk

Furthermore, ethical culture analysis can help asset managers quality control their ESG strategies and avoid problems down the road. For example, companies that have been embroiled in scandal often share certain characteristics, such as a history of aggressive sales practices, unrealistic targets, and a lack of transparency. Conducting an ethical culture analysis can help asset managers identify these red flags early on and avoid investing in companies that are likely to experience issues down the road.

Overall, it is clear that ethics and culture play a vital role in ESG strategies. Asset managers need to go beyond simply looking at publicly-available data when making investment decisions and instead focus on how a company’s internal culture aligns with its public statements on social responsibility. Furthermore, conducting an ethical culture analysis through a process of active engagement can help asset managers quality control their ESG strategies and avoid problems down the road. By taking these considerations into account, asset managers can create sustainable, long-term value for their clients; financially, socially and environmentally.

Find out how SI Engage can benefit your ESG data capture processes – get in touch to request your demo.

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