ESG Investment

What is ESG ?

ESG or Environmental, Social and Governance (ESG) investing is a strategy you can use to invest your money in companies that strive to make the world a better place, while trying to generate a profit. ESG investments depend on the independent ratings that allow you to assess a company's conduct and policies based on environmental performance, social impact and governance issues.
Before investing, we evaluate companies based on non-financial parameters like Environment Empathy, Social Responsibility and Corporate Governance. Evaluation of the companies is based on the positive and negative contributions they make to society.
Investors today are highly concerned about environmental and social problems like climate change, gender and racial inequality, data security and privacy. These metrics help us avoid investing in companies that contribute to these problems in society.

ESG Investing Parameters

ESG investing is a well-entrenched concept, and the future generations will play a pivotal role in
taking this forward, and contributing to a better world to live in.

Environment Empathy (E): Conservation of Natural Resources

Environment empathy is about the kind of impact a company has on the environment. It entails a broader scope of issues like, Climate change, Biodiversity, Waste and Pollution, Water and Energy Efficiency, GHG (GreenHouse Gas) Emissions, Resource Depletion, Deforestation

We all know that the melting glaciers and the rise in average temperature globally have resulted in global warming. Mankind has neglected their impact on the environment, and as a result, the forest covers are rapidly reduced, and the major rivers are polluted. This has caused the presence of air pollutants. All these have resulted in erratic rainfall, droughts and flooding. Using renewable energy, increasing the green cover, following proper waste management and pollution treatment measures are some of the measures taken to avoid these issues. 

Social Responsibility (S): Consideration of People & Relationships

Social Responsibility is about how an organization improves its social impact on society and it

entails a broader scope of issues like,

● Working Conditions

● Health and Safety

● Child Labour and Slavery

● Philanthropy

● Equal Opportunities

● Human Rights

● Employee Diversity

● Community Engagement

Corporations use raw materials and manpower from the area, where they operate their business.

While using these resources, it is expected of the company to use them in a fair, optimal and

socially responsible manner. Many companies have taken initiatives in safeguarding the

environment. Social responsibility is an ethical framework that suggests an individual cooperates

with other individuals for the benefit of society.

 

Corporate Governance (G): Standards for Running a Company

Corporate governance is about how an organization's management drive positive change in

society and it entails a broader scope of issues like,

● Business Ethics

● Compliance

● Executive Pay

● Board Diversity and Structure

● Bribery and Corruption

● Political Lobbying and Donations

● Tax Strategy

Corporate governance deals with the integrity and honesty of the management and can

resentfully impact the investor's wealth creation prospects in the longer run. Strict adherence to

good policies has always resulted in the sustainable growth of the organization. There is a reward

for all your good deeds. This applies to all aspects of life, business and investment as well.

When companies follow good policies and practices, it will eventually lead to brand building and

 

customer patronage.

Benefits of ESG Investment

Have you heard of the myth “Finance and Ethics don’t mix”? For years, people thought that sustainability investing will always lead to weaker returns. But the data showed that this is not true. ESG investing has achieved superior returns when compared to traditional funds. 

ESG investment allows a company to build a portfolio true to its values. A responsible portfolio leads to sustainability in the business and lets the company contribute to global change with your money. 

Bottom Line

Companies have already started experiencing the consequences financially, for failing to act on
sustainability as many countries have started imposing carbon taxes and have implemented
regulations. Even financial and banking sectors have integrated ESG rules into their funding
criteria. Private equity markets have included sustainability and ESG criteria in their portfolio
strategies.