The Value in ESG Investing
Introduction to ESG
Environmental, Social, Governance (ESG) has lingered on the forefront of businesses and investors minds. These are three key factors that are used when gauging an organization’s sustainability and ethical impact. Examples of criteria that fall under the ESG umbrella include:
Environmental: How a business acts as a steward to the world around us.
Greenhouse gas emissions
Waste & pollution
Resource depletion
Social: How a company serves its people, community, and adheres to safety.
Workforce diversity
Health & safety
Working conditions
Governance: How a corporation keeps itself accountable and defines its own set of responsibilities.
Tax strategy
Board diversity & structure
Donations & political lobbying
Though this list is nowhere near exhaustive, it offers an overview of how organizations are increasing transparency to stakeholders and improving operations both internally and externally.
How ESG investing works
ESG criteria are used by socially conscious investors to screen potential investments. It’s no wonder why investors have been drawn to this market when ESG funds are on track for record year inflows and CNBC reported that such investments could become a $1 trillion category by 2030. The investment strategy of those involved in this market share a common belief that ESG reflects an optimistic outlook for businesses and good corporate behavior equates to a greater monetary return.
Similar to the bond market, ESG ratings exist to measure a company’s long-term risks associated with the three criteria. MCSI is one of many organizations that offer these services by using a rules-based methodology to identify industry leaders and compare how well organizations can manage such risks relative to peers. The Global Reporting Initiative (GRI) is another popular independent organization that offers the world’s most widely used standards for sustainability reporting.
Why it matters
ESG practices resulted in better operational performance in 88% of companies and the stock price performance of 80% of companies was positively influenced. Beyond profits, the new wave of support for the mission behind incorporating ESG into business has also benefited the environment. Green investors incentivize companies to mitigate emissions, and it’s reported that carbon intensity falls by 5% when green investments double in a one year horizon. Though this may not lower emissions by an enormous factor, luckily there are loads of additional ways for socially conscious investors to spread their wealth:
Socially Responsible Investing (SRI): A strategy to help investors align their choices with their personal values; placing a greater emphasis on a company’s core practices and policies.
Impact Investing: A way to invest into market segments that are dedicated to solving issues around the globe. Guidelines are provided by the Global Impact Investing Network (GIIN)
Conscious Capitalism: A belief that companies should uphold the highest ethical conduct as possible.
All of these investment strategies revolve around the central belief that companies exist to not only serve shareholders, but to serve a broad public purpose and create value for all of society.
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About RyeStrategy
Based in Seattle, RyeStrategy is a CDP-accredited, mission-oriented company specialized in carbon accounting, mitigation coaching, and climate disclosure solutions for organizations at any point in their sustainability journey. Learn how RyeStrategy helped Salesforce, Ideascale, and Wazoku achieve their sustainability goals.
From exhaustive carbon footprinting and mitigation coaching, to setting science-based targets and reporting climate data to CDP, SBTi or custom reporting platforms, RyeStrategy acts as a hands-on extension of the team, custom-tailoring services to fulfill climate disclosure requirements easily and accurately.
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