ESG refers to economic, social and governance, these three are the central factors in measuring the sustainability and ethical impact of an investment in a company or a business. These criteria help to determine the financial performances of the company in the future.
These are a set of standards laid down for the company’s operations that help conscious investors to check and verify potential investments. Environmental criteria are to maintain the work of the company as the steward of nature, while social criteria focus on how the company manages its relationship with employees, suppliers and customers and Governance deals with the leadership of the company, executive pay, audits, internal controls, and shareholder rights.
How do ESG criteria benefit Investors?
ESG investment is sometimes referred to as sustainable or socially responsible investing and it’s even called impact investing because of the various benefits that it comes along with. It has easily become a popular way for investors to evaluate companies they might want to invest in and helps avoid the companies that pose a greater financial risk due to their environmental or other practices. The ESG standards provide another level of due diligence, which is in the best interest of shareholders. It is playing an essential role, in discarding companies that are unsustainable and outdated in their practices that have harmful side effects, which in turn is beneficial for the investors as it helps reducing risks and they can invest in more responsible companies which have greater capabilities of succeeding in the longer run.
What makes Wealth managers adopt ESGs?
You call it an investment philosophy or core values, but when a business wants to be sustainable, they will definitely take actions in these areas of interest that are put forward by ESG, it is very important for the business in giving value to the investors. It has been greatly beneficial to all companies in the past 5 years, companies have reevaluated their place in each of these spaces. As a result, sustainable companies are builders of profit and builders of society, which is a win-win situation. And also diversifies the stakeholders, it now includes shareholders, customers as well as employees and local communities. Profit is now a means to develop the share value as well as social and economic sustainability for a company.
ESG or sustainability is an investment more than just a cost. The entire idea revolves around being a sustainable company in the long term and doing a responsible business, which brings out the aspect of transparency and applying ESG standards and policies to the operations of the firm.
Investors have now realized the connection between how they invest and what values they want to promote, and most of the times the companies they are investing in do not align with their own values. ESG helps to reach this goal by its investment strategies. It helps people to pick up companies and industries that are responsible for their approach and put their money into a promising business. It helps the investors to view the investing strategy through a moral filter. No matter how small or big the investment is it essentially is an endorsement for how the company carries out the business. If it doesn’t adhere to similar values, that can be an investment moral dilemma.
Thus, investing in a more conscious way through an ESG strategy helps investors seek investment objectives that match their values and beliefs.