We are more exposed to the word ‘investment’ nowadays than we have ever before. All of this, thanks to advancement of technology of information. In addition to that, current pandemic has given us more time to browse things online and bring that word up to us more often.
People who invest are called as investors, and you might have known that by yourself because you are an investor already. But we all also know that not all businesses are clean and green. Investing on dirty businesses means we are also dirtying our hands.
On the other hand, will investment to green industries bring much profit? Afterall, what we need to get in return for our investment is profit. How to make sure that our investment goes to something good? Here we might need to talk about ESG.
What’s ESG investment, and how will it affect anything? How can ESG investment help us to make sure that we invest on something good? Here in this article we will talk about it.
What Is ESG?
We have more and more good people on this planet, even though most of them don’t want to expose themselves. The prove is a changing trend on investment that now has to include the ESG an industry to make it worth more, or even worth it.
ESG is the abbreviation for Environmental, Social, and Governance. Those three things are considered as important aspects in an industry to make sure they are worth investing in. And modern investors really care about the presence of those aspects.
E, which stands for environmental impacts, means that the industry has to care about the environmental impacts that they cause. It is even better if the industry that we are going to invest in can give benefits to the environment instead of just paying for the impacts they cause.
S, which stands for social impacts, means the industry has to pay close attention to eliminate social gaps inside. An industry with good point on this matter pays good attention to their workforce health, safety, and diversity. Basically, this point stands for how an industry takes care of human rights.
G, which stand for governance attributes, focuses on how companies are governed and how fair are their policies. It is an important consideration for investors since this point stands for making rights, expectations, and responsibilities of stakeholders clear.
After talking about ESG, we should talk about the investment itself. For long, investment is about numbers and trends. However, with ESG investment, we should also consider a new set of standards to decide whether we should invest or not in an industry.
Not all industry that has great trend and numbers are responsible for their ESG. The problem is, if people keep on investing on them, they will continue their ‘dirty’ practices and other industry with similar dirtiness will keep on doing such works.
ESG investment is basically a way to make everything better including the environment, social, and governance attributes of an industry, by giving them the chances to grow. Numbers are important, but numbers don’t mean a thing if this planet is in an apocalypse.
In ESG investment, investors care more about company’s inner workings and actions also. This is different from conventional investment, where investors only care about products and impacts even though the planet, the people, and the governance are all rotting from the inside.
By applying the Environmental, Social, and Governance filter, we will not only get profit in return, but also well-beingness. Why is that not an important factor in deciding which company and industry to invest in for our future?
How Can ESG Investment Benefit Our Planet?
When more investors woke, they would want to make their investments have positive impact to this world. Don’t you realize that ESG investment is basically one of the reasons why coal industry is now declining sharply, especially with the coronavirus outbreak?
“Investors who care about creating a positive impact have been stepping up to finance companies directly involved in addressing the coronavirus pandemic and to make sure others doing important work have the cash to keep going,” as further stated in Barron Magazine.
More investors prefer to invest on green energy breakthroughs, compared to the classic and dirty coal industry after using ESG filter. How can’t such kind of thing benefit our planet? When good deeds are supported by more people, it would get more energy to do good things.
Furthermore, when there are so many good things happen, it will gain more attention, and grow into a company with bigger influence. Especially during such kind of condition where coronavirus is hampering almost every part of global industry. Partly is because companies with good ESG tend to avoid carbon-intensive industries.
“The COVID-19 pandemic has reinforced the value of sustainable investments. When it hit, we were faced with massive market volatility and uncertainty; however, our fund managers took steps early to respond quickly,” said William de Vries, director of impact equities and bonds at Triodos.
Is This As Profitable?
Well, if ESG investment is a new term that you have never heard before, there sure are many things that come to your minds. Most common questions are such as its profitability, the number of investments exist, the cost, and whether or not it would really bring good things to the planet. One thing for sure is, good companies suitable for your ESG investment really do exist.
Indeed, by applying so many filters will thin down the numbers of companies that we need to invest in. But Clim8 Invest stated that their filter still gives around 400 companies. “We’ve curated over 400 companies in the Clim8 portfolio that have a product or service that’s making a positive difference to climate change,” said Duncan Grierson, Clim8 Invest founder.
Well, that’s still a good number but what about the profitability? De Vries from Triodos Pioneer Impact Fund stated that they outperformed their peers by 7% in the first semester of 2020 where the pandemic still caused great havoc in investment world.
The last question is, should we really believe that our ESG investment do good things to this world other than making profit? Well, indeed there are some cases of greenwashing, but we are living in the era of information. With a few clicks, we can examine whether the company we are investing in really does what it says or not.
ESG investment will not only help us become a responsible investor, but it also creates a trend toward the direction that we prefer. What we need is just a few more clicks.