Managing business risk as interest in ESG investment opportunities grows

Despite recent uncertainties, new research from Cambridge Advance Online reveals a sharp rise in interest in ESG investment opportunities, with 12-monthly UK Google Trends data showing significant growth in related searches:

• The topic of Socially Responsible Investing has grown interest by 200% while “ethical investments UK” has become a breakout search term (>5,000% increase). “ESG investments” (+350%), “ethical investment companies” (+160%) and “ESG stocks” (+70%) have also seen rises.

• More people are seeking certifications in ethical investing – search terms such as “ESG investing CFA” and “certificate in ESG investing” have surged in interest at +2,200% and +1,600% respectively.

• The number of people searching for company ESG ratings has risen significantly, with a 100% increase in interest for “S&P global ESG scores”.

This surge in interest comes amid growing uncertainty in the US following President Trump’s election, alongside increasing caution from asset managers facing heightened regulations, a rising anti-ESG sentiment, and ongoing greenwashing accusations. In the UK, stricter enforcement is also taking shape this month, as businesses making environmental claims that breach consumer law and fail to comply with the CMA’s Green Claims Code now risk fines of up to 10% of their global turnover or £300,000, whichever is higher.

However, a 2023 IBM study revealed that organisations seen as leaders in ESG are 43% more likely to be more profitable than their peers, which asset managers and investors appear to agree with. According to a recent Morgan Stanley survey, 78% of asset managers and 80% of asset owners globally expect assets in sustainable funds to grow in the next two years.

With investor and consumer interest in ESG on the rise against a backdrop of increased regulatory scrutiny and market uncertainty, effective risk management is more critical than ever. Cambridge Advance Online consulted ESG Risk Management course lead, Martin Massey, who shares expert advice drawn from over 30 years of experience in the field.

To mitigate risks, Martin urges businesses to maintain high standards of corporate governance, including transparent practices and effective board oversight. Using risk management as a framework will enable business leaders to understand their exposure to ESG and the opportunities it might bring them.

“Companies are generally shifting their broader purpose and focusing on becoming more sustainable”, Martin begins. “There’s also a broader shift around purpose in the culture of organisations. But often overlooked is the fact that ESG also helps to make companies more resilient as well.”

While sometimes slower to take immediate action, investors are increasingly asking probing questions about companies’ ESG practices. This heightened scrutiny will force many businesses to re-evaluate their ESG approach, recognising that, while investor demands may not yet be fully mandatory, the tide is turning.

Martin advises, “When managing ESG risks, businesses must consider a broad range of factors, moving away from simply being an exercise in compliance.”

“From a risk perspective, it’s the risk appetite framework that companies should be reviewing and changing”, he adds. This needs a comprehensive approach, incorporating a robust framework with the right mix of policies and procedures, technologies and training opportunities.

ESG software, for instance, can play a crucial role in this process by streamlining reporting, reducing administrative burdens, and enabling companies to focus on implementing strategies with a tangible impact on their ESG goals.

“There’s a whole range of ESG-related software that’s being designed and developed, ranging from ESG scoring systems used within due diligence processes to improved governance systems for managing and monitoring ethics and fraud through, for example, whistleblowing software”, Martin explains.

Continuous monitoring provides transparency, which Martin notes is increasingly important as investors and regulators look to see how well companies are managing their ESG risks. ESG metrics are also becoming more and more important to many organisations seeking to secure capital and investment.

However, he continues, “The challenge is to integrate these solutions into an organisation’s existing IT systems, and this includes a wealth of new data challenges.”

Education also plays a vital role in embedding ESG into a company’s culture, according to Martin, “Having an ESG training and education programme across all employees, particularly senior management, is really important to improve the risk culture of a company”, he says.

As Martin has argued, effective ESG risk management goes beyond regulatory compliance – it also strengthens resilience and the ability to adapt to changing market conditions today and into the future. By integrating ESG into existing risk frameworks, companies can manage risks more proactively and build long-term value, while meeting the increasing demands of investors, customers and regulators.

In light of these findings, more of Martin Massey’s recommendations for ESG risk management can be found at: www.advanceonline.cam.ac.uk/blog/how-to-manage-esg-risk