Environmental, Social, and Governance (ESG)
Environmental, Social, and Corporate Governance (ESG) refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. These criteria help to better determine the future financial performance of companies (return and risk). The threat of climate change and the depletion of resources has grown, so investors may choose to factor sustainability issues into their investment choices. The issues often represent externalities, such as influences on the functioning and revenues of the company that are not exclusively affected by market mechanisms. As with all areas of ESG, the breadth of possible concerns is vast (e.g. greenhouse gas emissions, biodiversity, waste management). Two of the chief areas of ESG related risk mitigation for potential Proteum EnergyTM investors are listed below:
• Climate change: The body of research providing evidence of global trends in climate change has led investors— pension funds, holders of insurance reserves—to begin to screen investments in terms of their impact on the perceived factors of climate change. Fossil fuel-reliant industries are less attractive. In the UK, investment policies were particularly affected by the conclusions of the Stern Review in 2006, a report commissioned by the British government to provide an economic analysis of the issues associated with climate change. Its conclusions began the ESG trend and pointed towards the necessity of including climate change considerations and environmental issues in all financial calculations and that the benefits of early action on climate change would outweigh its costs.
• Sustainability: In every area of the sustainability debate from the depletion of resources to the future of industries dependent upon diminishing raw materials, the question of the obsolescence of a company’s product or service is becoming central to the value ascribed to that company. The trend for this long-term view is becoming prevalent amongst investors.