The days of profit by any means necessary are gradually coming to an end. In the past, the ability to generate significant returns was the main determinant in making investment decisions. Global warming, corporate scandals, market crashes but mostly a growing moral consciousness among the populace has led to much needed changes in investing culture. The principles for responsible investments, a set of guidelines by the united nations was introduced in 2006 to serve as an official reference point and guide the blossoming movement. This new emerging culture would come to be known as Esg investing
What is ESG investing?
Esg investing is socially responsible investing which is done by allocating capital only to companies which satisfy certain predefined ethical guidelines i.e. esg metric and denying capital to companies that do not conform to the metric.In a nutshell,voting with your capital in the marketplace. Esg is an acronym which stands for environmental,social and Governance. i will explain further in details
More About ESG
The influence of esg standards is already making an impact in the investing world. in 2021,a Dutch court ordered royal Dutch shell plc, an oil conglomerate to reduce its worldwide carbon emission by 45% by 2030.Exxon mobile, another oil titan has appointed climate activists to their boards to help chart a better climate friendly course for the company. The world’s largest sovereign wealth fund owned by Norway said that over a decade, it has divested from over 366 companies it assessed as esg unfriendly. Morgan Stanley, a financial heavyweight company is hiking salaries for junior bankers to adequately compensate for the long hours they put into the job. All over the world, companies are putting in work to ensure they comply with esg standards and make their companies more attractive to investors. The change we dreamt of is here and the world will be better for it.
Final Thoughts
Environmental deals with a company’s policies towards climate change, deforestation, pollution ,resource management(water and energy)etc.it asks the question, does the company’s practices hurt the environment? Social deals with personnel relationship and workplace culture. illuminating further, it asks the questions “Are the employees fairly paid for their labour? Are opportunities equal? Are human rights respected and upheld? Is child labour a thing in the company? is the mental and physical health of staff a priority? etc. Governance mostly deals with management. issues covered are tax policy, business ethics, executive pay, board composition and diversity, political activities(lobbying and support). Compliance with the esg goals and PRI guidelines show up in a company esg ratings or risk score. Ranging from a scale of negligible to severe, the esg risk score grades companies based on their compliance or lack thereof of esg guidelines.
