Understanding Sustainable Investing and ESG

11
Mar

Understanding Sustainable Investing and ESG

Sustainable investing and environmental, social, and governance (ESG) investing enables one to participate as stewards of the planet and its inhabitants by leveraging environmental, social, and governance factors when they invest. The primary goal of the ESG investment is profit, but the impact must benefit beneficiaries for it to be tagged as an ESG investment.

 The concepts behind ESG investing are significant as they challenge corporate behavior and capitalism in our society. Changing demographics, shareholder expectations, consumer preferences, and regulatory pressures motivate and amplify Environmental, Social, and Governance (ESG) influences concerning the vulnerable ecosystem we depend on. How much of an impact ESG investing has will determine the future winners and losers of the business represented and the investment itself.

ESG investing comes from the same principles as socially responsible investing. Still, ESG screening takes it one step further by selecting measurable ESG factors of each company represented in the fund before the fund can be labeled as ESG:

Environmental- Conservation of the natural world

  • Conservation of the natural world
  • Climate change and carbon emissions
  • Air and water pollution
  • Biodiversity
  • Deforestation
  • Waste management
  • Water scarcity

Social- Consideration of people and relationships

  • Customer satisfaction
  • Data protection and privacy
  • Gender and diversity
  • Employee engagement
  • Community relations
  • Human rights
  • Labor standards

Governance- Standards for running a company

  • Board composition
  • Audit committee structure
  • Bribery and corruption
  • Executive compensation
  • Lobbying
  • Political contributions
  • Whistleblower schemes

If ESG funds don’t meet the requirements above, they may lose the confidence of the wealth management industry and the public. The companies represented in the ESG fund must also practice what they preach regarding their behavior.

In conclusion, suppose you desire to do good through sustainable investing. In that case, your financial professional can help determine which ESG funds are operating as a fiduciary and if the companies represented in the fund are scoring high in all ESG standards.

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