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The PPM Blog

ESG: A Worldwide Look

a close up of a womanContributed by Annie McIlwain P.E., Principal, PPM Consultants

Environmental, social, and governance (ESG) considerations have become increasingly important for companies and investors worldwide. ESG refers to a company’s performance in key areas related to sustainability, social responsibility, and corporate governance. In recent years, there has been a growing focus on ESG globally, and we will explore the practices of different countries in this article.

Europe has taken a leading role in the development of ESG regulations, with the European Union (EU) implementing several directives to promote sustainability and corporate responsibility. In 2018, the EU introduced a framework for sustainable finance, which aims to redirect capital towards sustainable investments and ensure that companies disclose their ESG performance. Additionally, the EU has proposed a taxonomy that will help investors identify environmentally sustainable activities. Some of the most stringent ESG regulations in the world are in Europe, such as the EU’s Non-Financial Reporting Directive, which requires large companies to report on ESG matters.

In North America, Canada has been at the forefront of ESG practices, with its regulators introducing guidelines for climate-related financial disclosure in 2017. In 2019, the Canadian government announced a plan to achieve net-zero emissions by 2050. Many Canadian companies have also made significant commitments to ESG, with some pledging to achieve net-zero emissions even earlier than the government’s target.

In the United States, ESG investing has gained momentum over the last decade. According to a report by the Forum for Sustainable and Responsible Investment (US SIF), assets under management in ESG strategies have grown by 42% since 2018, reaching $17.1 trillion in 2020. However, the US approach to ESG is often driven by investor demand, rather than government regulation. This is in contrast to Europe, where ESG practices are more heavily regulated.

Fortune 500 companies in the United States are implementing various environmental practices to improve their ESG performance. For example, Walmart has set a goal to reach zero emissions by 2040 and is investing in renewable energy to reduce its carbon footprint. Similarly, Apple is committed to using 100% renewable energy in its global operations and has set a target to become carbon neutral by 2030. Other companies, such as Amazon and Microsoft, have also made significant commitments to reduce their carbon footprint.

Other countries in Asia, Africa, and Latin America are also making progress on ESG. For example, Japan introduced the Stewardship Code in 2014, which requires institutional investors to engage with companies on ESG issues. In 2020, the Japanese government announced plans to achieve net-zero emissions by 2050. In South Africa, the Johannesburg Stock Exchange launched a sustainability index in 2004 to encourage listed companies to improve their ESG performance. Brazil has introduced a voluntary corporate sustainability index, the ISE, which includes companies that have demonstrated good ESG practices.

There are pros and cons to how different countries approach ESG. In Europe, heavy regulation ensures consistency in ESG practices and creates a level playing field for companies. Government regulation can also provide a push for companies to take action on sustainability issues. However, excessive regulation can stifle innovation and may result in a lack of flexibility for companies.

In North America, particularly in the United States, ESG practices are primarily driven by investor demand, and companies have more flexibility in pursuing their ESG goals. This approach can lead to innovation and may result in companies taking a more proactive approach to sustainability. However, the lack of government regulation can also lead to a lack of consistency in ESG practices, and some companies may neglect their ESG responsibilities.

In Canada, the government and companies are taking a collaborative approach to address ESG issues, with the government providing guidelines and companies implementing ESG practices voluntarily. This approach provides flexibility

In conclusion, ESG considerations have become increasingly important for companies, investors, and consumers. While there are significant differences in how countries throughout the world approach ESG, there is significant progress being made in improving ESG performance. Fortune 500 companies are taking various approaches to reduce their environmental impact, including investing in renewable energy and adopting circular economy principles. Ultimately, the success of ESG initiatives will depend on a combination of government regulation, investor demand, and corporate responsibility.

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