For corporates the importance of complying with ESG principles is driven increasingly by the rising share of ESG-driven investments, most notably among the largest institutional investors. According to PwC, ESG funds are set to hold more assets under management than their non-ESG counterparts by 2025, with ESG funds’ market share projected to rise to 57% in 2025, compared with the current 15%
. In effect, companies not complying with ESG norms deprive themselves of a rising share of the global investment pool, which may impart negative implications for the companies’ market capitalization.
There may be also notable implications for countries and companies in terms of borrowing costs depending on the resilience and susceptibility to environmental factors such as climate change. According to the estimates of the IMF, an increase of 10 percentage points in climate change vulnerability is associated with an increase of over 150 basis points in long-term government bond spreads of emerging markets and developing economies, while an improvement of 10 percentage points in climate change resilience is associated with a decrease of 37.5 basis points in bond spreads
Importantly, there are notable regional variations in perceptions and regulatory regimes governing ESG factors as revealed by a Blackrock survey of 425 investors in 27 countries with nearly $25trn in assets under management. For more than half of the respondents in EMEA (51%), the top reason for adopting sustainable strategies was because it is the right thing to do, while just 37 per cent of respondents in the region said mitigating investment risk was a key consideration. At the same time in the Americas, mitigating risk is the second highest driver of adoption (49 per cent), followed by better risk-adjusted performance (45%) and mandate from board or management (45%)