ESG Investments: Time to Rethink Your Investment Strategy


ESG Investments: Time to Rethink Your Investment Strategy

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The COVID-19 pandemic has given rise to a global health crisis and also conscious consumerism. Numerous companies have responded to green consumerism by setting forth their carbon-neutral or net-zero commitments through sustainable investing and taking steps to reduce greenhouse gas emissions.

Without a doubt, the pandemic highlighted the significance of supporting by investing in companies pursuing sustainable goals considering environmental, social, and governance (ESG) factors. ESG investments are an important topic that most investors discuss today. Some investments, like ESG stocks, perform better than other assets. They are found to be more resilient in bear markets. 

Whether for a business of any size or an investor, to thrive in the market, adopting ESG measures or ESG investing is critical. In a way, ESG is not merely a reporting framework for financial institutions and investors. It is something that all stakeholders in the ecosystem, including employees, investors, and regulators are aware of. 

The events like climate change and the coronavirus pandemic serve as reminders that we are stewards of nature. ESG is becoming even more important with the younger generation focusing on sustainability and considering ESG factors more when investing. Companies, irrespective of size, have the responsibility to build a more sustainable and resilient future by investing resources in stocks that are booming projects that have a positive impact on the environment.

To build sustainable infrastructure and achieve the goal of keeping the global temperature increase to 1.5°C by 2030, we would need $90 trillion of investment. 

Know what is ESG investment

A company’s operations for future investments are assessed using environmental, social, and governance (ESG) factors. Opening an online brokerage account and building a portfolio of assets with high social responsibility and low risk is an ESG investment for a common individual investor. When it comes to a company or institution, it involves making investments in businesses that operate ethically, sustainably, and with responsibility.

With a monthly income for the investor, ESG investments for meeting global challenges like resolving food shortages, lowering carbon footprint, and preventing pollution ensure positive returns for the investor. Sustainable or responsible investing includes social impact investing and ethical investing based on social and moral values.

The environmental (E) element evaluates a company’s activities and how they impact the environment, whether directly or across the supply chain. They include wastewater discharge, carbon footprint, animal treatment, and natural resources preservation.

The social (S) aspect assesses a company’s interactions and relationships with its employees, customers, suppliers, and others in the community it operates. For instance, the social factors include working conditions, employee relations, health and safety, and diversity.

The governance (G) element deals with internal policies and practices like shareholders’ rights, the company’s leadership, audits, internal control, and executive pay. Investors want to know the decisions a company takes on these policies and whether they can trust and invest in the company.

Why is ESG growing in importance?

The unforeseeable risks of the climate crisis and a pandemic, which have a huge impact on the world economy, are often compared. Many investors and governments have now come to understand the need of accelerating investments in and development of enterprises that prioritise ESG.

It is not the government alone but also the businesses on which our society is dependent for meeting its needs, which range from equitable growth, employment creation, and protection of consumer interests to the preservation of natural resources and pollution control.

For instance, governments across the world and several organisations are promoting investments in renewable energy sources, for they generate fewer carbon emissions than fossil fuels do. Increasing the usage of renewables will help slow down climate change. There is also increased spending on clean energy projects by various governments for a zero-emission economy by 2050.

Investors can look for investing in exchange-traded funds (ETFs) that focus on renewable and clean energy. With ESG-focused funds increasing, investors have more avenues to invest funds on projects driving high on the sustainability theme.

How does the implementation of ESG factors benefit your business?

Since the time the term ESG was devised in 2004, it has been rapidly growing with most investors trying to incorporate the ESG elements into their investment policies. The ESG framework is pushed as a mechanism to support projects that ensure the development of a more sustainable economy. How stakeholders, investors, and consumers assess companies depends on the ESG activities they carry out and their effect. Here is how ESG policies help your business.

  • ESG helps your business grow faster

Your company can easily extend its business operations in existing and new areas if it takes a strong approach to ESG factors. It facilitates access to various resources and deeper government relations. With the right ESG process, you can obtain licenses and authorization to produce sustainable goods that will appeal to consumers or commercial enterprises. People are willing to pay more for environmentally-friendly products today, for they are more concerned about products causing a bad effect on the environment.

  • ESG helps attract young talents and increase productivity

When it comes to productivity, employee satisfaction plays a crucial role, which in turn is correlated with shareholder returns. Better ESG approaches or concepts help companies recruit and keep competent staff who take great delight in upholding a clearly defined sustainability goal. Younger people today choose to work for organisations that show a higher commitment to various environmental and social issues.

Employees who are involved in a company’s sustainable practices exhibit high levels of motivation and satisfaction, which helps boost productivity.

  • ESG helps reduce costs

Adopting sustainable production techniques with the aid of superior ESG practices will increase your organization’s efficiency and significantly save costs. For instance, switching from virgin plastic to recycled (food-grade) plastic is one sustainable packaging alternative. With this, you may lessen your carbon footprint and save money on non-compliance fees in countries with stricter packaging regulations.

Henceforth, adopting eco-friendly practices in a company will help gain acceptance and appreciation and save money on utility costs.

  • ESG investing offers lower risk

With ESG investing, investors can have better investment options and minimise risk. Moreover, ESG will perform well and grow in value over time. Companies that comply with fair ESG guidelines and government regulations will be more committed to implementing ESG factors, which will make them less volatile.

Considering all these, you can easily integrate your portfolio with ESG investments by carefully reviewing the quantitative metrics, the objective of the funds, and how these objectives are attained.