ESG investments have taken the world by storm, as more people look to put their money in companies that align with their values.
But what is ESG investing and is it worth it?
Keep on reading to find out.
ESG stands for Environmental, Social, and Governance.
ESG investment is a form of investing where the investors put money in companies that promote positive environmental, social, and governance factors.
ESG investors look at the sustainability score of the company to determine whether they should invest in it. The score is based on a company’s ESG practices, including:
|Carbon footprintWaste management and usageWater and air pollutionGreen initiativesBiodiversity||Employee gender diversityEthnic diversityHuman rightsLabour standardsSexual harassment policiesData security||CEO compensation Board members diversityLobbyingCorruptionLarge-scale lawsuits|
Companies’ ESG scores are calculated by ESG research firms that determine the rating based on multiple criteria. Researchers weigh a company’s impact on society, the environment, and then look at how it treats its employees and conducts businesses.
These scores, most of which follow a 100-point scale, help investors compare different investments in a wide variety of industries. The higher the score, the better the company’s rating.
Because several firms issue ratings, their numbers may vary depending on their metrics schemes.
They often consider carbon emissions data; water usage data; waste data; diversity data; board composition data; employee satisfaction data; and community engagement data.
In addition to having a more sustainable investment portfolio, other benefits come with being an ESG investor.
Risks associated with ESG investing include:
Ultimately, the benefits and risks of ESG investing depend on an investor’s goals and risk tolerance.
If you’re interested in getting started in ESG investing, here’s how to do it:
If you think that ESG is a little complicated for you, other innovative investment strategies like robo-investing are great for beginners.
ESG, SRI, and CSR are all different types of investing.
ESG investors focus on the long-term financial performance of a company rather than just its short-term profitability. ESG factors include climate change, employee relations, human rights, corruption, and product safety.
SRI stands for “socially responsible investing” and is the practice of investing in companies that meet certain ethical or moral standards. SRI investors generally avoid buying stocks in companies that produce fossil fuels or manufacture firearms.
CSR is short for “corporate social responsibility” and refers to companies that make efforts to improve the social and environmental conditions in which they operate. CSR initiatives can include things like donating money to charity or investing in renewable energy.
The main difference between ESG, SRI, and CSR is that ESG investors are ultimately interested in a company’s efforts to positively impact society, SRI investors look at a company’s ethical performance and CSR investors focus on businesses that hold themselves accountable for their social commitments.
So, what is ESG investing? It’s the practice of investing in sustainable companies that promote positive environmental and social change.
ESG investing has been growing in popularity in recent years, which has prompted companies to start to incorporate ESG criteria and ESG investing strategies into their decision-making process.