SINGAPORE (July 27): In 2012, local palm oil producers Wilmar International and Golden Agri-Resources experienced first-hand the importance of strong environmental, social and governance or ESG ratings. Norges Bank Investment Management, the asset management unit of the Norwegian central bank, sold all its shares in both companies on concerns about the sustainability of their business models.

Since then, both companies have made significant changes to improve their ESG scores. Golden Agri, for instance, now maps its supply chain all the way to the mills where its palm oil is processed.

Indeed, sustainability is no longer just a buzzword. These days, it is fuelling a multibillion-dollar industry. Companies are under pressure from customers and shareholders to adopt better ESG practices. The requirements range from something as simple as disclosing a CEO’s salary to something as major as changing a business model.

According to the Global Sustainable Investment Alliance (GSIA), US$22.9 trillion ($31.2 trillion) of assets were being professionally managed under responsible investment strategies as at end-2015. That was a 25% increase since 2014, and represented 26% of professionally managed assets globally.

Market experts say that using ESG principles to make investment decisions is particularly sensible in this age. James Gifford, head of impact investing at UBS Global Wealth Management’s chief investment office, says there are some powerful secular trends that are driving the business case for sustainability.

“Like smartphone penetration — that has meant there is this unprecedented transparency in supply chains. If you look at the proportion of, say, garment workers in Asia with smartphones, it’s probably the great majority now even in countries such as Bangladesh. What that means is there is nowhere for unethical companies to hide. They will get discovered by somebody at some point. The risk of being an unethical or unsustainable company has dramatically increased in recent years,” he says.

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