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Environmental, Social and Governance (ESG)

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What is ESG investing? Definitions, details and predictions

  • ESG is the acronym for ‘Environmental, Social and Governance’. It’s a collection of non-financial measures within a business, such as sustainability goals and social responsibility initiatives. Increasingly, socially-conscious investors are using ESG as a criterion to identify the extent to which their investments are having a positive impact on the world.

What is ESG? Examples of Environmental, Social and Governance plans within companies

  • Environmental, social and governance initiatives can be explained through the following examples – and often, when socially-conscious investors are assessing their next ESG investments, these are the factors in which they can assess a company’s appropriateness.

Environmental

  • Efforts to reduce the company’s carbon footprint
  • Climate change proposals and greenhouse gas emission goals
  • Use of green technologies and renewable energy
  • Sustainability initiatives for employees, such as cycle-to-work schemes
  • Environmentally-friendly real estate strategies, such as energy-efficient office space

Social 

  • People-focussed elements, such as employee wellbeing
  • Staff training, development and equal pay
  • Positive company cultures with low staff turnover
  • Diversity and inclusion initiatives and equal opportunities standards
  • Safeguarding policies that protect employees health and safety
  • A positive, open stance on issues relating to (but not limited to) social justice and ethics
  • Consistently high standards of customer care

Governance 

  • Business oversight, shareholder-friendliness and management success
  • Fair compensation, bonuses and remuneration
  • Openness in regards to the board of directors
  • Diversity and inclusion efforts on boards
  • Transparent communication with shareholders

The benefits of ESG investing

  • For socially-conscious investors, the benefits of ESG investing are clear. However, ESG’s rising prominence is attracting the attention of other investors who have previously neglected the benefits of ‘doing well by doing good.’ Here’s why:
  • ESG initiatives make it very clear that a company is thinking long-term, rather than unsustainably chasing quarterly profits at all costs. It lays the foundation for successful longevity.
  • ESG initiatives can help signal successful management styles and excellent leadership abilities.
  • There has been a growing amount of research to suggest ESG-focussed companies are well-run and thereby produce financially superior results compared to non-ESG-focussed companies.

What’s in store for the future of ESG investing?

  • The stock market crash instigated by Covid-19 has acted as the first stress-test for ESG fundsAnd yet, they appear to have moved through the crash in good shape.
  • Research also shows that millennials are twice as likely to invest in companies implementing social and environment plans. In fact, Bank of America Merrill Lynch predicts that in the next 20 to 30 years, the generation could pump between $15 - $20 trillion into ESG investments in the United States.
  • Though most dedicated ESG strategies were launched after the Global Financial Crisis, the trend is accelerating, with the World Economic Forum reporting that stakeholder influence and a demand for transparency is driving this adoption.
  • It’s also likely that the world’s newfound focus on health, safety and sustainability in the wake of the coronavirus pandemic is driving ESG’s prominence, too.

 

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