CC BY
17
№ 11 (121)
ноябрь, 2024 г.
PAPERS IN ENGLISH
ECONOMIC SCIENCES
FINANCE, MONETARY CIRCULATION AND THE CREDITSECTION
DOI - 10.32743/UniLaw.2024.121.11.18446 STRATEGIC IMPACT OF ESG STRATEGIES ON ATTRACTING INVESTMENT
Aleksandra Dzhoi
Analyst in strategic consulting, Russia, Moscow E-mail: [email protected]
СТРАТЕГИЧЕСКОЕ ВЛИЯНИЕ ESG НА ИНВЕСТИЦИОННУЮ ПРИВЛЕКАТЕЛЬНОСТЬ
БИЗНЕСА
Джой Александра Денисовна
Аналитик в cтратегическом консалтинге,
РФ, г. Москва
ABSTRACT
Currently, corporate social responsibility (CSR) and Environmental, Social, and Governance (ESG) are becoming important factors for companies in the context of attracting investments and ensuring sustainability. CSR covers a wide range of social and environmental aspects, while ESG also includes the governance aspect. Investors are increasingly paying attention to companies using sustainable development practices, as these companies are more sustainable and less risky. This article explains in detail the impact of CSR and ESG on companies, as well as their connection to investment decisions.
In contemporary society, individuals represent a key element of the country's economy, serving as the primary capital. This article examines the impact and consequences of mental illnesses and their inadequate treatment on family members, workforce efficiency, and the national economy, both from strategic and operational perspectives. This work aims to contribute to the understanding of the importance of mental health in the context of economic prosperity and social stability.
Methods: market analysis, time series analysis methods and multidimensional statistical methods are used as methods in the presented study.
Findings: Research indicates that insufficient attention to the treatment of mental disorders among parents can significantly elevate the risk of similar conditions developing in their children in the future. Furthermore, mental disorders within the family contribute to a decline in overall well-being, increase instances of domestic violence, and may lead to the deterioration of familial relationships.
Conclusions: The findings highlight the complex interplay between mental health, family dynamics, and the economy. The high prevalence of untreated mental health disorders worldwide is a major concern, particularly among parents, as it has long-lasting effects on the mental and emotional well-being of children. Given the significant burden of mental health issues on global economies, workplace mental health programs must be prioritized as a strategy for improving employee well-being and overall productivity.
АННОТАЦИЯ
В условиях современного рынка корпоративная социальная ответственность стратегии ESG (Environmental, Social, and Governance) играет ключевую роль в формировании инвестиционной привлекательности бизнеса. Инвесторы все чаще отдают предпочтение организациям, демонстрирующим приверженность устойчивому развитию и социальной ответственности, рассматривая их как более надежные и финансово устойчивые. В данной статье исследуются механизмы стратегического влияния КСО, как распространённого в СНГ аналога ESG, и ESG на решения инвесторов, включая анализ их роли при инвестировании.
Библиографическое описание: Dzhoi A. STRATEGIC IMPACT OF ESG STRATEGIES ON ATTRACTING INVESTMENT // Universum: экономика и юриспруденция : электрон. научн. журн. 2024. 11(121). URL:
https://7universum.com/ru/economy/archive/item/18446
AUNTVERSUM:
№ 11 (121)_экономика г _ноябрь, 2024 г.
Методы: В исследовании используются методы качественного анализа, включая обзор литературы и практических примеров, а также количественные подходы, основанные на статистических данных и опросах инвесторов о значимости КСО и ESG для их инвестиций. Применяются также методы сопоставительного анализа для оценки влияния прозрачности на инвестиционные решения
Результаты: Исследование показывает, что некоторые компании, внедряющие практики КСО и ESG, обладают повышенной инвестиционной привлекательностью и способны создавать высокую степень доверия среди инвесторов. Прозрачность в управлении, социальные инициативы и экология оказывают позитивное влияние на имидж и репутацию бизнеса и делает их более привлекательными для инвестирования. Прозрачность компании уменьшает финансовую неопределенность, что делает их более привлекательными для инвестирования.
Заключение: Результаты исследования подчеркивают важность интеграции КСО и ESG в корпоративные стратегии. Ответственное управление и активное участие компании в социальных и экологических инициативах способствуют повышению ее устойчивости и доверия со стороны инвесторов. Однако, между внедрением принципов устойчивого развития и прозрачности не найдено однозначной прямой взаимосвязи для привлечения инвестиций и укрепления конкурентных позиций на рынке.
Keywords: investment; ESG strategy; sustainable development; ecology, strategy, business.
Ключевые слова: инвестирование; ESG-стратегия; устойчивое развитие; экология; стратеги; бизнес.
Introduction
In recent years, Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) strategies have gained prominence as critical factors influencing investment attractiveness. As societal awareness of environmental and social issues grows, investors are increasingly integrating non-financial criteria into their decision-making processes. While CSR typically encompasses voluntary initiatives focused on social and environmental impacts, ESG provides a broader framework that includes governance practices alongside these dimensions [4].
This study examines the relationship between CSR and ESG practices and their effects on investment appeal through a multi-method approach, comprising a literature review, statistical data analysis, and comparative analysis. By elucidating the influence of these frameworks on corporate strategy and investor preferences, this research aims to provide insights into the strategic importance of CSR and ESG for sustainable business practices and long-term competitiveness in the market.
Materials and Methods:
To analyze the impact of corporate social responsibility (CSR) and ESG (Environmental, Social, and Governance) strategies on investment attractiveness, the following methods were used:
1. Literature Review: A thorough examination of existing scientific literature was conducted to gather empirical data confirming the influence of CSR and ESG practices on investment decisions. This included a review of peer-reviewed articles, reports, and case studies that address the relationship between social responsibility and investor preferences.
2. Comparative Analysis: Comparative methods were employed to gauge the impact of transparency on investment decisions among companies with different levels of commitment to CSR and ESG practices. This involved benchmarking companies within the same industry to identify patterns in investment behavior relative to their commitment to social and environmental initiatives.
Currently, there is no universally accepted definition of corporate social responsibility (CSR). Therefore, we will focus on the most widely recognized definition: CSR refers to a comprehensive range of activities undertaken by a company, encompassing various initiatives aimed at supporting environmental sustainability, social initiatives, and other areas with which the business interacts [1], [4].
ESG stands for Environmental, Social, and Governance. This framework is based on the 17 Sustainable Development Goals established by the United Nations General Assembly in 2015. Among these goals are the eradication of hunger and poverty, achieving gender equality, ensuring quality education, promoting responsible consumption and production, and fostering peace and justice, among others. These goals encompass three main areas: ecology, social issues, and economics [2].
Both of these terms represent socially responsible business practices. However, the concept of ESG is broader than that of CSR. CSR addresses a maximum of two aspects: S (social) and E (environmental). The corporate aspect is not encompassed within CSR; it does not include the regulation of fair competition issues, the implementation of anti-corruption measures, supplier compliance checks with legislation, and other related aspects. For example, CSR does not cover the development and implementation of environmental management policies and energy conservation programs. Furthermore, it is notable that CSR qualitatively describes the accountability of businesses for their social commitments, whereas ESG aims to measure or quantitatively evaluate social efforts.
In recent years, there has been an increased interest in the rational use of resources within the global community, encompassing both ecological and social aspects. Responsible business management is becoming an integral part of its attractiveness to investors and the formation of a stellar business reputation. Moreover, it is becoming a significant aspect of public policy in developed countries. Currently, virtually every multinational corporation considers three aspects when formulating long-term strategies or planning investments: environmental, social, and governance (ESG) [6].
According to Bloomberg Intelligence, the global total of assets under management in ESG-related funds is around $41 trillion. That's up from $22.8 trillion in 2016.
Bloomberg Intelligence also estimates that ESG-related investments will surpass $50 trillion by 2025 [10].
0
2016 201S 2020 2D22 2025
Figure 1. Total global ESG assets, USD trillions
The strategic influence of CSR and ESG on businesses is profound. Companies that integrate ESG principles into their core operations often enjoy enhanced brand loyalty and an improved public image. The alignment of business strategies with social and environmental goals can attract a broader customer base, particularly among consumers who prioritize sustaina-bility and ethical practices. This growing consumer awareness can lead to increased market share for companies that actively demonstrate their commitment to responsible practices.
Additionally, adherence to ESG standards is increasingly seen as a risk management strategy. Businesses that proactively address environmental and social risks can enhance their resilience against regulatory changes, shifting market demands, and reputational threats. Incorporating ESG strategies can lead to greater operational efficiencies, cost savings, and improved supply chain management. For example, environmentally sustainable practices can reduce waste and energy consumption, directly impacting the bottom line while simultaneously appealing to environmentally conscious investors [7].
By adhering to sustainable development principles, companies are offered both financial and non-financial advantages. For instance, compliance with ESG requirements helps companies avoid penalties, secure loans at lower interest rates, attract more investors, and obtain financing on more favorable terms by employing additional mechanisms for value creation. One of the first ESG loans was issued by Sovcombank: $300 million for the construction of a nuclear power plant in Turkey at a reduced interest rate, conditional on fulfilling environmental protection commitments. Sberbank developed ESG covenants and issued a similar loan to AFK "Sistema," with the interest rate dependent on the approval of the environmental policy and the integration of responsible investment principles into the business model. [10] Furthermore, investors are increasingly applying ESG criteria in their investment analyses.
Institutional investors and asset managers now integrate ESG factors into their financial models to assess long-term sustainability and potential risks associated with non-compliance. Companies demonstrating robust ESG practices tend to receive preferential treatment in capital markets, resulting in a lower cost of equity and debt. This trend is indicative of a paradigm shift, where traditional financial metrics alone are insufficient to capture a company's future potential.
Various studies are dedicated to exploring the relationship between corporate social responsibility (CSR) and financial performance, a topic of particular interest for investors. Adhering to sustainable practices not only helps companies mitigate significant risks during project execution but also enhances the efficiency of a wide range of operational and production processes. Additionally, it fosters improved relationships with regulatory authorities, which is quite logical, as organizations become more transparent. This transparency fosters greater trust from customers and partners, thereby enhancing the company's reputation [2].
Developing a "friendly" brand that cares for both the environment and people significantly enhances human relationships with existing clients and increases their loyalty while attracting new customers. This is crucial for ensuring a positive image and solid business reputation, as well as for improving a company's competitiveness in the market. Such competitive advantage can lead to economic stability, expansion of the potential customer base, and, consequently, increased revenue.
Moreover, strategic CSR initiatives often translate into a more engaged and motivated workforce. By prioritizing employee well-being and job satisfaction, companies reduce turnover rates and attract more skilled personnel. This simplified recruitment and retention process not only enhances operational continuity but also boosts productivity, contributing to the overall resilience of the organization [8].
Furthermore, investors perceive companies that engage in CSR practices as having lower uncertainty regarding returns on their investments. This association is underpinned by empirical evidence from retail studies, indicating that investors are willing to invest in firms adhering to ESG and CSR principles, even when their equity capital costs are lower than those of non-compliant firms. Such a willingness reflects a strategic mindset on the part of investors, recognizing long-term value creation potential inherent in socially responsible enterprises [3].
Recent insights into investor perspectives reveal significant generational divides regarding the prioritization of environmental, social, and governance (ESG) objectives. The survey, which included 2,470 investors with savings ranging from less than 10,000$ to more
than 500 000$, highlights that younger shareholders exhibit a marked eagerness for fund managers to pursue ESG objectives, demonstrating a greater willingness to accept higher financial risks in exchange for sustainable practices. The average investor in their twenties or thirties indicated a readiness to lose between 6% and 10% of their investments if it meant seeing improvements in companies' environmental practices. Conversely, the average Baby Boomer displayed a reluctance to accept any loss, highlighting the stark contrast in investment philosophies across generations [10]. Roughly 80% of Gen Z/ Millenial, 60% of Gen X, and just 30% of Baby Boomer investors said that their investment firm should influence companies' ESG policies or practices even if doing so decreases the value of their investment, according to a Stanford University study. (Fig. 2)
100% 80% 60% 40% 20% 0%
Gen Z/ Millenials
Gen X
Baby boomers
Figure 2. The impact of ESG on generational investment decisions, %
Ultimately, the integration of CSR and ESG into business strategies facilitates more robust stakeholder engagement, fosters innovation, and enables companies to navigate regulatory landscapes more effectively. Such alignment with sustainable development principles positions businesses competitively, allowing them to respond adeptly to market changes and stakeholder expectations. Therefore, the strategic implications of CSR and ESG go far beyond mere compliance; they are critical drivers of long-term profitability and competitive edge. The analysis of the Capital Group's 2022 ESG study
reveals that investors' concerns and interests regarding ESG funds primarily revolve around performance, the availability of reliable data, and the risk of greenwash-ing. Investors are increasingly focused on evaluating the performance of ESG investments compared to traditional non-ESG investments; however, the current lack of comprehensive data hinders definitive conclusions in this area. This deficiency creates uncertainty in the ongoing discourse about the comparative returns of ESG versus non-ESG assets, as there is insufficient historical data to make a well-informed judgment. (Fig. 3)
Figure 3. Total global ESG assets, USD trillions
However, in practice, the disclosure of information exerts a significant, but not sole, influence on investment attractiveness, while the impact on equity value is assessed in the context of many other factors affecting the capital market conditions. For example, information about engagement with the local community through charitable programs often does not influence equity value. At the same time, detailed information about the internal social environment and environmental responsibility programs can positively affect the dynamics of declining equity value [11].
Consequently, investors consider corporate social responsibility (CSR) and ESG factors in their decision-making to manage risks and ensure sustainable long-term returns on investments. They are interested in a company's actions in this area and examine whether the management integrates social obligations into their development strategies, prioritizing them over short-term profits. Effective implementation of CSR and ESG thus becomes not just a corporate obligation to society, but also a strategic tool that enables the company to enhance its investment attractiveness.
It is important to note that there are currently no definitive conclusions: some studies show a strictly positive correlation between these factors, while others indicate solely a negative correlation, and there are also works that state there is no such correlation overall [9]. Nonetheless, one can say for certain: the practice of non-financial reporting, increased transparency, and care for
customers and employees—what CSR and ESG fundamentally entail—lead to enhanced business resilience and reduced risks, which in turn always positively impacts the companies' investment attractiveness.
Results
The analysis showed that companies actively practicing CSR and integrating ESG principles into their strategies demonstrate better financial performance and resilience in the face of market volatility. For example, companies with high ESG ratings experienced increased market capitalization and lower stock volatility during crisis periods. Research also confirms that these companies more frequently gain access to financing under more favorable conditions, thereby lowering their overall cost structure.
Conclusion
In conclusion, the strategic integration of CSR and ESG into business practices not only promotes social responsibility but also strengthens the company's market position, enhancing its investment attractiveness. Investors are increasingly paying attention to non-financial aspects, emphasizing the need for companies to proac-tively manage their social and environmental commitments. Ultimately, the strategic implementation of CSR and ESG becomes a key factor not only for forming a positive image but also for ensuring long-term sustain-ability and competitiveness in the market.
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