He gave the example of Dunelm’s plans to raise the bar on their cotton to 100 per cent "conscious choice" within two years. This will be a market-leading initiative, giving the company a competitive advantage over their peers.
What is also becoming apparent is that businesses with strong ESG principles and practices want to do business with like-minded companies.
The Science-Based Targets Initiative – a collaboration between the CDP, the UN Global Compact, the World Resources Institute and the World Wide Fund for Nature – has established a framework for good supply chain and human capital practices that is increasingly being used alongside more traditional factors for awarding contracts.
Businesses that are not serious about this are being left behind.
Our recent ESG analysis on Smith & Nephew, the medical technology company, revealed that they demand high levels of sustainability criteria from their tier-one suppliers in order to award contracts.
In turn, Smith & Nephew themselves are also being challenged when they are discussing selling their products to potential purchasers. How a company makes its products these days is as important as what it actually makes.
However, it is not just environmental matters that are important – companies with a strong culture outperform.
According to research by the investment bank Jefferies, the "100 Best Companies to Work For" rankings outperformed the S&P 500 by 5.33 per cent annually since 1998, including compound dividend reinvestment.
This is why understanding non-tangible factors of employee engagement, creativity, recognition, autonomy and trust, alongside good training, diversity and recruitment practices is crucial to making good long-term investment decisions.
Politicians gamble on short-term sentiment shifts, but as long-term investors we have to identify companies with the courage and determination to continuously innovate, despite an ever-changing backdrop.
In addition to this, ESG as a competitive advantage is real and we feel it is an important factor in helping us to deliver the best outcome to our clients.
Nigel Yates is UK sustainable equity portfolio manager at Axa IM
