Do Baltic investors care about environmental, social and governance (ESG)?

Ilze Zumente,Jūlija Bistrova

doi:10.9770/jesi.2021.8.4(20)

Abstract

As the environmental, social and governance (ESG) adoption practices in large and developed economies are becoming more sophisticated, in the still developing economies the non-financial information disclosure practices are gradually evolving. This article aims to capture the ESG implementation practices and challenges of the financial investors and banks operating in the Baltic countries Lithuania, Latvia and Estonia. By analyzing survey data of 37 financial market players, the results reveal that around 81% of the respondents already use ESG data when evaluating their investments, which can partly be explained by the regulatory drivers coming from the large share of private equity and venture funds managing local and international public funding. Moreover, a substantial average weight of 0.39 is found to be attributed to the sustainability factors in the investment evaluation process, which is rather high given the general perception of the ESG being a recent addition to the investment evaluation tools. While 51% of the respondents admitted that Covid-19 pandemic has made no changes in their ESG practices, there are other common challenges named by the investors e.g. lack of general and quantifiable ESG data from the side of the companies and struggles to find matching benchmarks for the large share of the small and midsized companies dominating the Baltic investment market. By addressing the obstacles highlighted by this research, the policy makers can explore the ways how to foster a wider adoption of ESG policies in the Baltic investment universe.

Highlights

With the increasing importance of the non-financial factors in the investment process, more and more investors are actively looking for companies demonstrating high environmental, social and governance (ESG) standards
In order to provide an aggregate view on ESG application, challenges and practices by the financial investors investing in the Baltic countries, this study aims to analyse the ESG preferences and policies of the financial investors and banks operating in Lithuania, Latvia and Estonia
In order to obtain a view on ESG factor application in the Baltic market, a survey was created and digitally distributed via e-mail or Linkedin to 56 financial investors, asset managers and banks with their primary operational markets in Lithuania, Latvia and Estonia

Summary

Introduction

With the increasing importance of the non-financial factors in the investment process, more and more investors are actively looking for companies demonstrating high environmental, social and governance (ESG) standards. The effect of the changes is twofold – while more financial investors and banks are favouring investments in high ESG standard companies, the companies themselves must start paying more attention to their non-financial performance to be able to attract financing (UN PRI, 2019). This has become even more important during the uncertainty caused by the Covid-19 crisis. This paper provides several contributions to the academic literature It contributes to the existing volume of the academic research, which aims at describing the ESG factor application in the investment process, in this case, in respect to the specific Baltic country geography. The remainder of the paper is organized as follows – Section 2 summarizes the relevant literature about investors view on ESG applications and the main challenges they face, Section 3 sets forth the methodology employed in this study, Section 4 describes and discusses the results and Section 5 concludes

Literature review

Research objective and methodology

37 Source

Results and discussion

Conclusions