ESG: What Is It, And Do You Want To Ethically Invest?
What is ESG Investing?
ESG investing assesses an investment vehicle’s environmental and social impact to determine its viability. ESG stands for environmental, social, and corporate governance, and these are the main telling points when assessing the sustainability and impact of a business or other entity you choose to invest in:
- Environmental impact focuses on how much a business is pulling from natural resources and how much waste it is putting back into the environment. Therefore, factors like the company’s carbon footprint, environmental preservation efforts, nature conservation, use of renewable energy, etc., matter.
- Social focuses on a company’s diversity and inclusion consideration when hiring employees, customer service policies, and other efforts that make a positive social impact.
- Corporate governance focuses on the organisation structure and how balanced and fair it is to everyone at each level.
Ethical investments benefit you in two ways – you’ll enjoy the financial returns and contribute positively to the world. As more and more people grow conscious of their contributions to the environment, they begin to appreciate whatever small role they play in changing the tides and how a collection of those individual efforts leads to a ripple effect across the world. Here are some ethical investments to consider:
1. SRI funds
SRI (socially responsible investing) funds intentionally avoid controversial entities such as tobacco, alcohol, oil, and firearm manufacturers. The moral implication of a company’s activities is important to an investor who wishes only to impact the world positively.
2. Impact funds
Impact funds prioritise the need for a positive environmental impact and return healthy profits. Therefore, they strategically invest in companies that offer products and services that do the most good in society while being in demand, thus ensuring healthy returns.
3. Faith-based funds
These funds invest in entities that follow religious values and ideals and intentionally exclude funds that do not.
4. ESG funds
ESG funds are similar to SRI funds but go beyond focusing on ethically sound businesses to those that do something about improving the environment, social, and corporate governance structures and practices. For example, it is not enough to invest in a company that produces medical equipment instead of one that produces firearms. ESG funds focus on manufacturers that produce said medical equipment while using the least amount of environmental resources and even eliminating waste from the environment through recycling.
Benefits of ESG Investments
The sustainable angle and clever utilisation of resources benefit both the investment vehicle and the investor.
Companies that offer investors the chance to contribute positively to their environment while enjoying decent profits are more marketable than those that are only keen on making profits. As such, ESG investments perform better than conventional ones.
Pooled funds from investors receive a major boost when lenders are also more willing to consider applications from ESG-centric companies. Therefore, such companies can undertake major projects that promise even greater returns.
The combination of increased funding and motivation to do better for future generations inspires performance, which leads to better returns. Employees in a company that actively improves the environment, and their welfare in the process, will do their best work, thus ensuring an overall improved performance.
Customers also love to buy from companies that demonstrate their care for more than profits. Identifying personal values that resonate with a company’s ESG consideration builds loyalty, even if that means paying extra for its products and services.
Factoring ESG principles into a company’s operations has that long-term sustainability benefit. As more government policies and regulations advocate for sustainability, companies take a proactive approach to future-proof their operations.
How to invest in ESG-Focused Companies
1. Understand your ESG priorities
The first step to ESG investing is understanding what you need from the investment. There are many worthy causes and objectives, but you can only focus on ones that align with your principles after this assessment.
2. Shortlist ESG investment options
Your understanding should ease the selection process and considerably narrow down your options.
3. Consult the right investment advisor
You can take a DIY approach, but that is not advisable considering the significance of such an investment. Turn to an experienced consultancy that understands the market and when to invest.
ESG investments are the perfect choice for those who want to make money while positively impacting the world. Choosing firms that play an active role in improving the environment is sustainable and guarantees those healthy returns for the long term. Get in touch with us today for financial advice and an excellent selection of ESG investments.