In recent years, the introduction of Environmental, Social, and Governance (ESG) factors in decision making and operations has steered companies towards creating long term,
sustainable value for stakeholders and communities.
The adoption of ESG interests is however limited if emphasis is placed on financial materiality and decisions are motivated by reporting requirements, compliance needs, and risk mitigation.
Today, many investors and companies reference ESG factors to set the baseline and minimum threshold for responsible investments and to avoid doing harm through their business activities. This narrow approach is shifting as more frameworks and regulations begin to adopt double materiality – accounting for the impact of businesses on society and environment, in addition to financially material ESG factors.
Beyond merely acting to avoid harm as prescribed by ESG factors, leading investors and companies are starting to go further and striving to contribute to solutions that address our social and environmental challenges, in tandem with their pursuit of profits.
This is impact investing.