What is ESG?

ESG stands for Environmental Social and Governance and refers to three main factors when measuring the sustainability and ethical impact of investment in business or company. Most investors who are socially responsible examine companies using ESG criteria to filter out investment.

This is a generic term used in the capital market and is usually used by investors to evaluate company behavior, and determine their financial performance in the future.

Social factors and environmental governance are the subset of non-financial performance indicators that include ethical, sustainable, and company problems such as ensuring a system to ensure accountability and managing the company’s carbon traces.

The amount of investment funds that combines the factors of ESG has developed rapidly since the beginning of this decade, and is expected to continue to increase significantly during the coming decade.

ESG’s three central factors are:

Environmental criteria, which examines how a business performs as a steward of our natural environment, focusing on:

• waste and pollution
• resource depletion
• greenhouse gas emission
• deforestation
• climate change

Social criteria, which looks at how the company treats people, and concentrates on:

• employee relations & diversity
• working conditions, including child labor and slavery
• local communities; seeks explicitly to fund projects or institutions that will serve poor and underserved communities globally
• health and safety
• conflict

Governance criteria, which examines how a corporation polices itself – how the company is governed, and focuses on:

• tax strategy
• executive remuneration
• donations and political lobbying
• corruption and bribery
• board diversity and structure

If you are an investor and want to buy ESG scale securities, you must consider social mutual funds and the funds traded on the exchange.

Experts say that what is a series of precise ESG criteria is subjective – it depends on what your priorities – so you need to do your own research if you really want to find an investment that suits your own values.

ESG and the alternative investment world

ESG standards gradually become an important part of the alternative investment world. ESG problems are not only important when measuring the sustainability of the impact of non-financial investment-they may also have a material impact on the return profile and long-term risk of the investment portfolio.

A recent study found that investors who chose ESG scale investment received ‘dual dividends’ in the form of lower risks plus a better rate of return **.

** The rate of return is the ratio of income from investment on its initial cost.

It has been found that businesses that adopt ESG standards tend to be more thorough, less risky and consequently more likely to be successful in their long -term commercial goals.

Traditional investors are increasingly interested in the ESG framework, and many are starting to use criteria to assess risk in the investment decision making process.

According to Trilinc Global LLC, a private investment management company dedicated to launching and managing innovative products “

“ESG standards provide another complete level of completion, which is the best interest of shareholders. When the United Nations launched Unpri in 2006 and Watchdogs such as Bloomberg and MSCI began to track ESG, it became very clear that this was not a short -lived fashion. “

“ESG got rid of non -sustainable companies with outdated practices and dangerous side effects, while also minimizing risk for investors because they invest in companies that are more responsible with greater possibilities to succeed in the long run.”

ESG-screened investments are good investments

The practice of considering environmental, social and governance issues when looking for investment opportunities has developed rapidly from its origin.

Some different methods are currently being used by motivated and motivated investors in considering ESG problems in all asset classes.

It is a myth to think that socially responsible investment comes at a cost – that you will make less money – in fact, which is the opposite often happens.

In an article published by the *CFA Institute last year – Environmental, Social, and Governance Problems in Investment: Guide for Investment Professionals – Usman Hayat, CFA and Matt Orsagh, CFA, CIPM Write:

“However, there is a perception error that remains that the body of empirical evidence shows that ESG considerations affect financial performance.”

“For investment professionals, the main idea in discussions about ESG problems is that systematically considering ESG problems will likely lead to more complete investment analysis and better investment decisions.”

* CFA Institute, based in Charlottesville, Virginia, offers a Chartered Financial Analyst (CFA) appointment.

In another paper published by the CFA Institute-Integrating ESG into the Fixed-Incomme Portfolio-Christoph Klein CFA Claims that integrating ESG Criteria into Fixed-Incompe Analysis can reduce idiosyncratic And avoid investments that may be vulnerable to decreased credit ratings, widening credit spreads, and price volatility. “

Leksikon Financial Times said the following about the environment, social and governance:

“ESG (environment, social and governance) is a generic term used in the capital market and is used by investors to evaluate company behavior and to determine the company’s financial performance in the future.”

“The ESG factor is a subset of non-financial performance indicators that include sustainable, ethical and company governance problems such as managing the company’s carbon traces and ensuring there is an existing system to ensure accountability.”

People’s attitude changes
Google and Impax conducted a survey of more than 300 investors with £ 500,000 ($ 700,000) or more long -term savings and investment. The aim is to determine what their attitude towards climate change follows the COP21 Conference in Paris.

Below are some survey findings:

70% of respondents said they were worried about climate change.
15.3% said they had taken the steps of investing in sustainable/clean energy stock plus not investing in fossil fuels.
33.5% claim that currently has an investment that focuses on net energy, energy efficiency or sustainability.
Writing at the Financial Times, Nyree Stewart quoted Hamish Chamberlayne, a Sri manager at Henderson Global Investors, who said:

“The big picture is that in the coming decades, the global economy will turn into a low -carbon economy and that will be one of the biggest investment events in our lives.”

“We have a global economy that is about $ 80Trn [£ 56.3Trn] and is very dependent on carbon, so it switches to the economy where we are far more unable to cause large disturbances to the established industry and geopolitical relations and how global the economy works . In the next 10-20 years there will be enormous risks and opportunities. “