A current area of focus for investors with a commitment to ESG issues or delivering impact is how to assess the profile of potential targets or their current portfolios.
Harvard Business School has launched a new initiative to assess the monetary environmental impact of thousands of large companies. The project is part of a general trend to allow investors to assess the ESG profile of their investments with a similar rigour as financial matters.
The inclusion of ESG / impact metrics would assist in decision making and the identification of best-in-class companies.
The call for impact-weight accounts may seem novel but it is consistent with a number of changes that are already being made. With effect from 1 January this year, a new revision to the UK Stewardship Code came into force. The revised Code includes a new focus on ESG issues.
A general current trend in regulation is to require more disclosure from companies, in order to allow investors and the market to make an informed assessment. A requirement to include an impact-weighted analysis in the accounts of large companies may not be too far in the future.
The environmental and social challenges we face require immediate action. An overhaul of accounting standards, while welcomed, would take too long. Capital markets could bring that change faster. Important levers will be companies understanding the value of information to make better decisions; investors incorporating impact-weighted measures in their decisions; and stock exchanges asking for disclosure of impact-weighted metrics. These forces can be important levers to change how we measure performance.