To ESG or not to ESG, why bother?
There’s no denying the bombshell declaration of $9.5bn of “socially conscious funds” from ESG investments being tied up in Russian oil companies has come as a predictable shock. Or when ESG ratings company Truvalue Labs gave Sam Bank-Friedman’s FTX crypto enterprise a higher score on ‘leadership and governance’ than Exxon/Mobil. Being neither environmentally nor socially responsible, the discovery of funds investing in Russian oil and the subsequent bankruptcy of FTX has forced a drastic re-evaluation of ESG strategies, as well as the industry standard about what determines an “ESG worthy” company. And quite rightly so. However, this isn’t necessarily a bad thing; fine tuning what constitutes an environmental, social, and governance investment can go a long way towards ensuring the same, and similar, doesn’t happen again.
With invested cash being tracked under greater scrutiny and many fund managers rethinking which companies they’re currently investing in, potential alternatives, and what guidelines should be adhered to, presents an opportunity to effectively reset. Despite the current controversy, the highest rated ESG stocks in Europe rewarded investors with 12% outperformance in 2021, even when sector biases are accounted for*, highlighting the financial benefits of choosing ESG over traditional investments.
Going forward, ESG can be shaped into being exactly what is says on the tin – sans greenwashing. Hiring more women doesn’t excuse drilling for oil, for example. Sourcing ingredients from small, family farms shouldn’t excuse having children working long hours to harvest them. The company itself, in its policies, and in everything it does, should do so in line with each element of the ESG framework. Achieving a perfect ESG rating is not something that occurs overnight, it takes work, hard truths, corporate transparency, and ownership. Acknowledging that there are ‘bad’ practices is the first step in making positive improvements. At the crux of making changes to policy and overhauling ‘bad’ practices is funding; the financial sector has the power to lead this shift. By only investing in companies committed to improving their ESG ratings, the companies with sustainably questionable operations are effectively given an ultimatum: be driven out of the market or make significant changes. Therefore, sustainability exceeds ESG – if financiers prioritise ESG for investments, then companies are forced to do the same, creating a do-better-be-better loop.
It’s worth remembering that governments are beginning to implement policies, schemes, and levies that promote ‘greener’ operations and financially punish those who do not adhere. The Paris Climate Agreement legally holds 196 parties to ensuring policies are made in accordance with limiting climate increases to less than 2 degrees celsius – a stimulating prompt to make drastic changes. For example, the UK’s Carbon Price Support rates charging power stations and electric grids for just receiving LPG, gas, coal or fossil fuels through their front doors. Governance of social and environmental policies in emerging markets are still in their infancy. This presents a unique opportunity where governments can sow the seeds to ensure the market that does emerge is one that incentivises ESG investments.
Continuing this idea specifically to Romco, our values force us to strive towards true sustainability – in social and environmental responsibility, and in governance. Our overall aims force us to remain true to becoming truly sustainable as a business:
- Providing a sustainable means of meeting a 80% increase in demand for aluminium by 2050 and,
- To contribute towards creating a circular global economy via sourcing metals through local partners who grow with us in an ethical and structured approach to supply blue-chip OEMs and trading partners with traceable world-class products.
As a result, we believe is in good stead for the future of sustainable and responsible investing.
To align these goals with the ESG framework is important:
E – Producing secondary metals in Africa, a country with an abundance of scrap, to supply an ever-increasing demand significantly reduces reliance on primary sources, reducing emissions and energy requirements for production by up to 95%, with no loss of natural habitat.
S – Development of the ‘Pursuit Program’ (see ESG report) offering workplace training for all staff irrespective of length of employment or seniority, enabling them to progress their careers.
We’ve also created a Small Business Buying Program. This program has advanced over $7million in 2022 for local business and sole traders in our local communities to build their sustainable businesses alongside us.
G – Operating in a replicable and scalable emerging markets model operated and overseen by industry experts and an experienced and independent UK PLC-style governance structure.
*(more detail can be found on the “About Us” page or our website romcometals.com)
In the pre-pandemic world of 2019, the top 10 ESG funds recorded double digit growth and as mentioned above, 2021 also saw double-digit growth. If ESG returns are strong – and increasingly so – then where investors choose to put their cash is self-explanatory. With more attractive prospects for investors than traditional stocks/funds, companies that align themselves to the ESG framework are positioned to prosper. Transparency in operations is therefore key to ensuring funds no longer end up in unsustainable environmentally damaging industries, as well as making it easier to hold companies accountable for their investment choices. We’re holding ourselves accountable for ensuring we uphold the validity of being an “ESG-worthy” company by striving towards being truly sustainable.
Learn more about sustainable investment partnerships in the ESG space by subscribing to our news at https://romcometals.com/news-insight/, or by visiting romcometals.com