Professional investors in the UK are expecting a greater focus on ESG (Environmental, Social and Governance) issues in small and micro-cap companies, new research from investment holding company MBH Corporation shows.
The MBH study, among UK based professional investors managing a collective £83.2 billion who specialise in small and micro-cap investments, found 87% believe the focus on ESG issues will increase over the next 12 months with 31% expecting a dramatic increase in the next year.
The numbers expecting a dramatic increase over the next five years increases to 46%, the study found, with none of the investors interviewed believing the focus on ESG will decrease in the next 12 months or the next five years.
MBH Corporation plc, a diversified investment holding company listed in the US and Germany, which acquires successful, well established micro-cap and small sized enterprises across multiple geographies and sectors, says its role in helping small businesses to grow and create jobs in their communities is central to its ESG strategy.
Why ESG matters for smaller companies as well
ESG criteria are a set of standards for a company’s operations used by socially-conscious investors to screen potential investments, focusing on environmental issues, social issues such as relationships with employees, suppliers and local communities and governance issues relating to a company’s leadership.
The research found 82% of investors believe the focus and investment by small and micro caps in ESG will increase over the next three years with 37% saying it will increase dramatically.
Increased focus and investment on ESG will be accompanied by enhanced reporting and transparency from companies on their ESG policies and strategies with 92% expecting the level to increase including 49% who expect a dramatic increase.
“ESG issues sit right at the heart of the corporate and investor agenda and our study demonstrates they will only grow in importance for investors and small and micro-cap companies,” said Vikki Sylvester, CEO of Acacia Training and Executive Director of MBH.
Fund managers and institutional investors are becoming much more focused on ESG criteria when analysing companies. Based on conversations The Armchair Trader has had with fund managers ourselves, smaller companies will be expected to meet much higher standards in these areas over the next five years.
Similar concerns are also being voiced by private investors who are using a wide range of benchmarks to assess the ESG criteria of all the listed companies they buy shares in.
“ESG might be flavour of the day for investors right now, but whether it is called ESG, CSR, or Social Entrepreneurship, most small businesses – certainly the ones we work with – have been doing this in one form or another for decades,” Callum Laing, CEO MBH Corporation plc, said. “We welcome the focus from investors and the opportunity to use 3rd party benchmarking to create a common language around the ethos that is already deeply ingrained in many great companies.”
MBH currently has 26 successful and profitable small businesses in its portfolio and says it will continue its highly focused growth of well-established profitable small businesses across multiple geographies and industries.
MBH targets companies carrying little to no debt, delivering around US$1m – US$10m EBITDA and are generally still run by their founders who become co-owners of MBH.