The COVID-19 pandemic has thrown the world into chaos with countries scrambling to put together appropriate responses to the global crises. The past two years has rattled the world in a way that has not happened in decades, and in a way no one could have imagined.
As the world slowly recovers from the damage of the pandemic and with economies on their path back to normality, issues that were on the back burner are beginning to recapture our collective attention.
At the top of this list of issues are two that are more pertinent than others: environmental degradation and social injustice/inequality. At the same time, as life returns to normal, priorities are shifting and people are more conscious of how fickle their income can be in dire times. As such, many have turned to the stock market, whether to grow their wealth quicker or to slowly save for the future.
However, an issue that many face is the daunting knowledge of knowing exactly where to invest their money, especially considering that a single stock exchange can have thousands of individual companies to choose from. As such, many are turning to “ESG Investing” as a way to predict which companies will continue to succeed long term, while at the same time investing in companies that will help develop a better future for our planet.
What is ESG Investing and why is it on the rise?
Sustainable investing, commonly referred to as “ESG”, refers to the three factors used to determine if one should invest in a company: environmental, social, and corporate Governance. It is believed that by looking at these three factors, one can better predict the future success of any company while also making an ethical or sustainable investment.
Writing for Greenly Evannah Jayne points out about Environmental Social Governance (ESG) that “nowadays, major companies around the globe are being asked to report on social and environmental practices as part of their accountability to stakeholders.”
The environmental factor looks at how the company conducts business and if it is environmentally conscious and friendly. If a company isn’t shifting to sustainable methods, it is likely to lose support and investors as the current demand lies in preventing climate change and preserving the environment. On the other hand, a company that uses green energy or creates products from recycled materials will likely become a popular choice for investment as it more aligns with the desire of the general public.
The social aspect of “ESG” refers to the issues that pertain to people. This can range from the culture at a workplace to the overall impact a company can bestow on society. Companies that have a history of problematic management or poor treatment of workers will likely lose monetary and public support.
Meanwhile, Corporate governance refers to those in charge of companies, meaning that a decision to invest can be made based on the history or experience of those leading. A well known CEO with a strong track record of leading their company through good times and bad will be a much safer bet than a fresh candidate whom people do not know.
Combining these three factors can help identify companies that will continue to be profitable in the future and do so safely throughout the years. Additionally, one can invest with a clear conscience knowing that their money is allocated towards a company that is sustainable and treats its employees well.
Is ESG investing for you?
The trend of “ESG investing” has been picking up speed and is reflected in the current market. For example, many “green” companies have been receiving more investment than in previous years. “ESG” gives beginners an easy way to evaluate a company without having to look into quarterly reports or understand financial figures and patterns.
Of course, it should be clearly stated that this method does not guarantee that the company will never fail or will even see massive success. But it is a good indicator for a stable investment that will likely give a positive return over time. It will also allow you to make an investment that comforts you with the knowledge that you made a sustainable and ethically good choice.