ESG Investing and ESG factors
ESG investing is a more ethical and its equities portfolios and/or bonds for which environmental, social and governance factors have been integrated into the investment process. It's may not be easier as we think to get started.
Using your investments in businesses you believe ESG friendly. In other words, ESG investing refers to a style of sustainable investing that considers both an investment’s long-term financial returns and how well it follows environmental, societal and corporate governance criteria.
Environmental: Environmental factors include how a company mitigates its greenhouse gas emissions, whether the products the company creates are sustainable, if it uses natural resources efficiently and how it deals with recycling.
Social: The social component includes factors both inside and outside the company. Does the business participate in community development, such as providing affordable housing or fair lending? Does it carefully consider diversity and equal employment opportunity in its hiring? Does the company prioritize human rights everywhere it does business, including other countries?
Governance: Corporate governance refers to the company’s leadership and board, including whether executive pay is reasonable if the company’s board of directors is diverse and whether it’s responsive to shareholders.
The popularity of ESG funds seems to be catching on among investors who want to be seen to be making a contribution to cutting global warming and adding to human development, without compromising on financial returns.
However, there are debates shows that ESG considerations adversely affect financial performance.
“ESG (environmental, social and governance) is a generic term used in capital markets and used by investors to evaluate corporate behaviour and to determine the future financial performance of companies.”
“ESG factors are a subset of non-financial performance indicators which include sustainable, ethical and corporate governance issues such as managing the company’s carbon footprint and ensuring there are systems in place to ensure accountability.”
It is easy to be cynical and critical about aspects of the growth in ESG investing and the motives of some involved in it. Yet whilst it should be held up to scrutiny, there is also the possibility that we allow perfect to become the enemy of the good.