ESG Investments

What is it?

ESG stands for environmental, social, and governance. Regarding sustainability measures, these three pillars help evaluate how proactive companies and countries are. Once these factors are evaluated, they become integrated into the investment process to decide what equities or bonds to buy. Because we are moving towards a more sustainable culture it is important to pay attention to these ESG factors.

Environmental Factors?

Environmental factors have everything to do with the environment. The factor is measured based on how much a company or country makes changes to better climate change. Combating global warming, cutting emissions, and decarbonizing are becoming hot topics all around the world.

Social Factors?

Social factors include topics like labor and child labor, workplace health and safety, and human rights. A social score will rise if companies or countries are being involved with their community and making it more integrated.

Governance Factors?

Governance factors refer to the set of rules, principles, or laws that outline the responsibilities and expectations of the stakeholders and shareholders of the company. If a company's governance is clearly understood and defined, then that would raise the governance score.

Five ways ESG creates value:

1. Top line growth: attract customers and support supply chain

2. Cost reductions: energy, water, and/or packaging savings

3. Regulatory and legal: subsidies, tax credits, and avoiding fines

4. Productivity uplift: attract and motivate employees

5. Investment and asset optimization: better allocate capital for the long term and increased competition

Companies and countries that have higher ESG factors are more likely to have people invest. It has started to become an important value to individuals as organizations are beginning to garner more support than other entities which lack an ESG framework. One big problem with ESG is companies promising to reduce their carbon footprint and not actually following through. There are many companies that greenwash and it's something we need to be aware of and continue to challenge so that we are supporting those who consistently practice ESG factors. For example, companies, such as Toms, have implemented a buy one and donate one to promote their ESG factors. Companies are taking these actions to make shareholders want to invest more in the company and make it more appealing and likable to the stakeholders.

ESG is an important and well-talked-about topic that many people should be aware of whether you’re a part of the company, a shareholder, a stakeholder, or you’re not related at all. It is becoming our new reality and something we should all learn how to adapt to.