ESG investment strategies are gaining steam for all the right reasons. Here’s what you need to know about the growing ESG trend.
When it comes to investments, the phrase “doing good” could bear more weight than “doing well.” There’s a growing body of evidence to support that companies who focus on environmental, social, and governance (ESG) components may be likely to outperform other companies in the market, which could mean it’s time for investors to double down on sustainability.
What is an ESG Investment Strategy?
ESG refers to an investor’s strategy that takes into account a company’s approach to ESG factors.
In turn, it also holds companies to higher standards in order to gain capital investments, encouraging them to promote sustainability and social responsibility that will leave a positive impact on those they serve — it’s a win/win.
How Investors are Approaching ESG Strategies
Investors size up investment opportunities through the ESG lens, which evaluates unique metrics related to environmental, social, and company governance factors. These include, but are not limited to
● Waste management
● Energy efficiency
● Carbon emissions
● Labour standards
● Customer satisfaction
● Staff turnover and diversity
● Company structure
● Executive compensation
This link between social performance and investment viability isn’t new, but its potential for higher growth and competitive advantage is starting to attract a niche group of investors. The goal is to invest in companies that share your values while weeding out those that don’t, which allows you to feel good about your investment choices while earning guilt-free returns.
Exploring the Potential for an ESG Investing Strategy
There’s plenty of evidence to support the idea that focusing beyond shareholder value can generate short- and long-term financial performance. And given that 85% of S&P companies now publish sustainability reports (up from 20% in 2011), even organizations believe that promoting ESG transparency will make them look more favorable to investors.
ESG investing grew to $30 trillion in 2018, and some experts predict that number could reach as much as $50 trillion within the next 20 years. The idea is that when companies take a stakeholder-centric approach by including ESG factors to attract investors, they’re believed to attract and retain better talent, manage and reduce risk, build customer loyalty, and drive sustainable growth because they’re making a positive impact on the communities they serve. These factors are often hailed as the building blocks of success, which can promote sustainable value over time.
ESG opportunities are ideal for investors who not only want the best ROI, but also want to make the world a better place.
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