World’s Largest ETF Provider Pushes For Global ESG Framework.
Firstly, what is ESG investing?
ESG is short for Environmental, Social, and Corporate Governance. ESG Investing is a class of investing that considers non-financial factors that impact the sustainability and societal impact of an investment.
Thanks to people like Bill Gates, and many others spreading the word of ESG and Sustainability in general, investors are becoming increasingly conscious of where they’re investing their money.
In fact, Investment Bank Morgan Stanely's 2019 Sustainable Signals Study stated that 85% of individual investors are interested in sustainable investing, up 10% from 2017. Meanwhile, 95% of millennials are interested in sustainable investing, up 9% from 2017.
Company Reporting & ESG Investing
Blackrock is the world’s largest asset manager and owner of the huge group of iShares exchange-traded funds (ETFs).
The world's largest asset manager has grown even larger in 2020. According to Blackrock’s Q3 earnings release, Blackrock now has $7.8 trillion in assets under management (AUM), a 12% increase from the corresponding period last year.
As a result of the surge in awareness of ESG investing, asset Managers like Blackrock have seen enormous inflows of capital into their ESG investing products.
With the gold rush of ESG investing seemingly underway, Blackrock is lobbying for a single global reporting approach to sustainability reporting.
At present, the frameworks that determine an individual company’s sustainability reporting requirements are widespread across the industry, with different company’s reporting different metrics, leading to incomparable and inconsistent data.
Blackrock is of the opinion that global standardisation of ESG Reporting allows for the consideration of ‘material environmental, social and governance (ESG) risks and opportunities’, while also allowing for ‘more accurate asset pricing’ as a result of a clearer understanding of risk.
An October report published by Blackrock said that “investors and other stakeholders need a clearer picture of how companies are managing sustainability today and planning for the future”
Who's leading the charge?
Although Blackrock is pushing for a single standard, there are a few initiatives underway by different organisations to create a standardised global reporting system.
One is backed by the SASB (Sustainability Accounting Standards Board), and another, led by the International Financial Reporting Standards Foundation (IFRS).
The World Economic Forums International Business council is also working in conjunction with the Big 4 accounting firms to create their own global reporting standard.
While it's great that different organisations are working towards developing their own globally recognised frameworks, Blackrock is of the opinion that convergence is necessary, and I tend to agree.
Stay tuned for an upcoming article where I’ll un-pack three ASX listed ETF’s designed to only provide investors with exposure to the world’s best ESG company's.