As investors increasingly use Environmental, Social and Governance (ESG) criteria as a set of standards for consideration in their investment decisions, some small and mid-caps are excelling at setting a benchmark.

Environmental, Social and Governance (ESG) has experienced rapid growth in recent years and is estimated to be worth $35.3 trillion, equivalent to around a third of assets under management globally.

Europe is currently the epicentre of ESG action, but Australian investors are certainly not missing out. Over the last five years, shares in ESG fund Australian Ethical Investment (ASX:AEF) have gained 1,100%, or 12 times.

But what exactly is ESG and why has it experienced such rapid growth?  Matt Gaden, Head of Australia at investment firm Janus Henderson, told Stockhead that integrating ESG factors into investment decisions is “fundamental to delivering the results clients seek”.

“As a long-term investor, Janus Henderson supports new and existing companies making long-term investments in reducing waste, improving efficiency and environmental technology aimed at driving future sustainable returns,” Gaden said.

Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with stakeholders such as employees, suppliers, customers, and the communities where it operates.

Governance criteria are concerned with a company’s leadership, executive pay, audits and shareholder rights.

In that context, investment firms are also looking to practice what they preach in terms of key ESG criteria.

For example, Janus Henderson runs a carbon-neutral operation across its global offices, through a combination of renewable energy and the purchase of carbon credits and energy off-set certificates.

“We expect the financial sector to continue to evolve its ESG focus and accelerate its own efforts to deliver urgent support needed for sustainable development goals and push for better quality and more standardised disclosures,” Gaden said.

“We also see asset owners and asset managers putting more pressure on corporates to deliver more sustainable outcomes, and governments around the world to coordinate policies that would enable the financial sector to better allocate capital in support of a low carbon and circular economy consistent with one’s fiduciary duty to clients.”

From green hydrogen strategies to helping businesses reduce their carbon footprint there are some impressive initiatives from companies who view ESG as a fundamental aspect of their operations.


Transforming electricity delivery for a sustainable future

Fast-growing electricity provider Locality Planning Energy Holdings (ASX:LPE) are challenging the way customers receive their electricity, with first to market technology in renewable and sustainable solar-generated electricity and carbon neutral centralised hot water systems.

Non-Executive Director Justin Pettett said LPE is empowering people to save money on their electricity costs and create sustainable communities of the future.

“We recognise the importance of creating sustainable and renewable energy to reduce carbon emissions and are focused on delivering an innovative solution that drives the business towards being a leading enabler of creating sustainable communities of the future,” Pettett said.


QEM improving the image of mining companies

Forward thinking QEM (ASX:QEM) is challenging traditional sentiment towards mining companies with their associated green hydrogen strategy to enhance their dual commodity vanadium and oil shale Julia Creek Project in North-Western Queensland.

The Australian Energy Market Operator (AEMO) recently announced that the corridor between Townsville and the NWMP contains Eastern Australia’s best co-located wind and solar resources, becoming Australia’s only region to be given an ‘A’ rating by the AEMO.

DNV Australia has undertaken assessment work, including preliminary mapping and modelling of solar and wind resources, which indicate that both are conceptually suitable sources of power generation at the Julia Creek Project.

QEM Managing Director Gavin Loyden said further solar and wind farm optimisation studies will start shortly to enable final assessment of the most suitable solution of the proposed power generation.

“With sustainable mining always at the forefront of our strategy, QEM is excited about developing a green-fuelled vanadium industry in Queensland – even more so after the Premier announced last week that Queensland will be at the forefront of vanadium mining to meet skyrocketing global demand for battery minerals,” Loyden said.


Efficient production of magnesium

Latrobe Magnesium (ASX:LMG) is set to become the sole producer of magnesium in Australia. The up-and-coming green metal is seeing increased use in both ICE and electric vehicles along with other modes of air, truck, and train transport where its light weighting enables better range and less CO2 emissions.

Latrobe Magnesium is constructing their demonstration plant, which will use their proprietary Hydromet technology to remediate 100% of the fly ash deposits in the Latrobe Valley into saleable products.

The plant’s CO2 emission will be at least 50% less than the industry average. Latrobe Magnesium CEO, David Paterson, said the recycling of the potentially hazardous waste material is positive for the environment and the health of the local community.

Paterson said the company is well-positioned to take advantage of the push for ESGs and green metals.

“Magnesium is one of the light weighting metals of the future with research being undertaken on battery and hydrogen storage,” he said.

“LMG has a number of expansion opportunities due to its low CO2 emissions technologies which involves improving the environment through recycling and adding value to the local communities in which it operates.”


Simble helping companies on journey to net-zero

Energy intelligence and carbon management software provider, Simble Solutions (ASX:SIS), is helping companies worldwide measure and ultimately reduce their carbon footprint.

From commercial and industrial companies through to SMEs, Simble are working with companies on the pathway to net-zero through their enterprise-grade carbon and sustainability reporting platform, CarbonView.

The platform is set to take advantage of the global push for carbon management and reporting.

“We’re excited by the increasing attention being placed by companies of all sizes on the need to report and disclose their carbon emissions on their path to net zero. CarbonView is ideally positioned to help all businesses embark on that path,” said Founder and Executive Director, Fadi Geha.

Recently, to support growth activities in the UK and Australia for CarbonView, Simble conducted a $1.63m placement that was corner stoned by L39 Capital Pty Limited.

“The ESG space has recently developed extraordinary tailwinds. We have a rigorous filter for our cornerstone small cap investments and Simble ticked all the boxes with excellent technology along with a responsive management & board and most importantly 10x potential from its current low base,” said Peter Rubinstein, Director at L39 Capital.

This article was developed in collaboration with Fresh Equities, a Stockhead advertiser at the time of publishing.

 This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.