Opportunities for Environmental, Social and Governance (ESG) Standards in Developing Markets

Environmental, social and governmental (ESG) issues are growing in importance for companies and investors in advanced economies. There are varying opinions about the impact of ESG investment criteria on financial returns, with many concerned that there is a performance penalty associated with ESG investing, but data show that the majority of ESG funds outperform broader market investments over 10 years. This should accelerate the growth of ESG investing, and with that growth, a better understanding of ESG methodologies, metrics and ratings will become increasingly important.  In fall 2020, DAI's Sustainable Business Group requested an EPD workshop team to survey these aspects of the current ESG field, as well as ESG considerations for companies and investors in emerging markets.  Through spring 2021, the workshop team carried out extensive secondary research, as well as interviews with ESG consultants, ESG rating agencies and ESG managers at major firms.  The team reported its main findings and recommendations to DAI in May 2021.