ESG Criteria in Investment: Foreign and Russian Experience
Authors: Ekaterina O. Vostrikova, Anna P. Meshkova
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The evolution of financial instruments improves investment decision-making. Modern society requires additional information about companies' activities: standard financial statements and
financial indicators no longer satisfy its needs. Environmental degradation, global warming, and the fight against poverty amid growing prosperity in developed countries — all these factors promote the development of new financial instruments and criteria. ESG provides the answer to these modern demands and can help evaluate companies' activities related to investment in sustainable development. Moreover, the application of these criteria enables companies to reduce risks and to create reputation, and helps investment funds make quality investment decisions. This trend, which has emerged and strengthened in developed foreign countries over the past 50 years, is penetrating emerging markets as well. This article investigates the role of ESG criteria in making investment decisions based on foreign experience. The leaders in socially responsible investment are the economies of developed countries: the USA, Canada, Great Britain, Germany, and Australia. As Russian companies seek international financing, they will have to compete for investors in foreign financial markets on their terms. Therefore, it makes sense to focus on following ESG criteria in their activities right now. Currently, there are a number of barriers to the implementation of ESG criteria in Russia: lack of understanding of the importance of socially responsible investments, lack of state standards in the
disclosure of non-financial information, lack of large domestic investors (lack of competition on the pension insurance market as well), and the focus of Russian companies only on medium-term profits.