ESG (Environmental, Social, Governance) is one of the most important terms in the context of business and investment appraisal. Consideration of environmental, social policy and corporate governance aspects is becoming increasingly important in investment decisions, and the shift of investments towards ESG-sensitive financing has accelerated significantly in recent years.

The observed changes are the result of a growing awareness of the benefits of integrating ESG factors, including climate risks, into business strategies. In addition, the drive towards sustainability in the European economy is supported by a regulatory environment that focuses on asset managers and companies related to non-financial reporting, i.e. disclosure of sustainability-related information.

The transition to a low-carbon, more sustainable and resource-efficient circular economy, consistent with the Sustainable Development Goals, is also key to ensuring the long-term competitiveness of the economy, leading to low greenhouse gas emissions and the development of climate-resilient businesses.

Key areas of sustainability include aspects of:

  • Environmental – assessing the impact of activities on the environment, including: emissions, use of natural resources, biodiversity conservation, climate change mitigation and adaptation;
  • Social – the impact on the environment, employees and the local community and the elimination of social inequalities;
  • Corporate governance – incorporating elements of good governance and business ethics towards shareholders, customers, employees and all stakeholders, promoting transparency, accountability and combating corruption.

These three ESG areas are closely interlinked, while complementing and supporting the Sustainable Development Goals (SDGs) agreed by the UN in 2015.

Importantly, ESG significantly influences the sustainability of a given company and a better willingness to manage risks. Increased awareness and a sustainable and, above all, responsible approach has a positive impact on the image issues and reputation of the company. A better understanding of the social and environmental impact of the business and the integration of emerging opportunities related to climate action into the company’s strategy, as well as the integration of climate risk analysis into broader enterprise risk management, provide resilience to market changes as well as responding to stakeholder expectations.

The number of funds investing in sustainable infrastructure is increasing. According to a Morningstar study (1), in Q3 2023, funds in the EU that included or promoted environmental and social aspects accounted for more than 56% of total assets, while already in Q4 2024, their share rose to almost 60%, with a 1.7% increase in assets compared to the previous quarter, reaching a record value of €5.2 trillion (2).

EU Funds' share of the breakdown, according to the SFDR

Data source: Morningstar (2023) SFDR Article 8 and Article 9 Funds: Q4 2023 in Review

Investment in sustainable infrastructure contributes to the European Union’s stated climate goals. Increased funding for investment in the low-carbon economy is driven both by the need to reduce greenhouse gas emissions, use energy-saving technologies and increase the share of renewable energy, as well as by growing public awareness, significant regulatory changes and the need to reduce dependence on imported fossil fuels.

1 Morningstar (2023), SFDR Article 8 and Article 9 Funds: Q3 2023 in Review
2 Morningstar (2023), SFDR Article 8 and Article 9 Funds: Q4 2023 in Review