ESG stands for Environment, Social and Governance criteria, which are the three main areas that represent the pillars of sustainable investment.
In 2015, the United Nations officially adopted a plan to encourage action in the coming years in areas of critical importance for humanity and the planet. The agenda sets out 17 universal Sustainable Development Goals (SDGs), ranging from «zero hunger» to «innovation and industry infrastructure».
Investors evaluate companies using ESG criteria to rate the impact of an investment, as well as its associated risks. The criteria of ESG is becoming increasingly important in the investment decisions of many investors, adopting ESG as part of their management philosophy and competitive analysis. In this context, the integration of ESG information into valuation models is essential for management based on ESG principles.
Alex Fuentes, Inveniam’s partner and the Group’s leader in the ESG area, comments that “within the different aspects that make up ESG, at Inveniam we have drawn up for our customers those indicators relating to environmental factors that refer to the company’s behaviour in environmental aspects such as resource depletion, climate change, waste and pollution and we thus evaluate the impact that our customers’ investments and/or projects have both from an environmental and a human health and job creation point of view. We aim to go beyond the usual measure of project profitability and measure the social return on such projects”.
Eric Suñol, Inveniam’s managing partner adds that Inveniam intends to take up this challenge, “offering a quality service for the efficient assessment, measurement and integration of ESG criteria in the analysis of investments with an environmental impact, highlighting aspects that have a social impact and transforming financial information into financial-social information. Since many investors are incorporating ESG into the investment process, the integration of sustainability elements into our clients’ strategy definitely has an impact on their income”.
Our clients are usually asset managers or investment professionals who wish to integrate ESG data into their capital allocation processes, as well as direct asset owners, financial planners and family offices who wish to include the assessment of non-financial issues for proper investment decision making.
ESG should be seen as an investment, rather than a cost. Therefore, companies that incorporate ESG criteria into their strategy gain several benefits, including increased market confidence and shareholder value.
DPSIR & PSI Framework Methodology:
International institutions such as the European Environment Agency (EEA) have approved a comprehensive model to describe the interactions of anthropogenic environmental activities, called DPSIR (Driving force, Pressure, State, Impact and Response) framework. In fact, this model can also be extended to all social impact factors.
Pressure: pressure indicators are human activities that cause or may cause environmental problems in society. Pressure indicators describe the emission of pollutants into the air, water and soil, and the use of natural resources.
State: state indicators describe the state of various aspects of the environment and/or society at a given time. The state depends, in addition to natural conditions, upon the pressures on the environment and the environmental protection measures that have been implemented.
Impact: impact indicators showcase the consequences of changes in the state of the environment or in the population. These can lead to benefits and/or damages, which can be expressed in economic terms, profitability and/or Disability Adjusted Life Years (DALY’s).
The following chart exemplifies these concepts:
If you want further information on ESG criteria and the analysis of financial-social information, please contact us by email at email@example.com.