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Understanding ESG Trends: 5 Reasons Investors Should Care about ESG

Investors are at the core of most successful companies in the country. However, just because you have the funds, you shouldn’t invest in just any company. Smart business executives utilize the ESG criteria for their investments.

You invest intending to make a profit from your investment. This can be difficult if the company you’ve poured your resources into performs dismally on the market. 

The ESG approach, for instance, is an approach many investors use to invest in the right companies. In this piece, we’ll look at the latest ESG trends investors have adopted and why these ESG trends are so important.

What Is ESG in Investments? 

ESG abbreviates environmental, social, and governance. While there’s nothing quite leading about the name, it’s quite an important factor for both investors and company executives.

Environmental, social, and governance are a set of bases (plural basis) through which investors gauge a company for investment potential. In doing so, companies can determine the corporate inclinations and future financial performance of the company in question.

However, ESG doesn’t only focus on the financial prosperity of a company. It also has its environmental and social aspects. For instance, an ESG investor may invest in a company because of its remarkably low carbon footprint or its spirited effort to rehabilitate deforested areas.

Thus ESG investing is a subset of investment that seeks not only financial benefits but also positive social and environmental impact. Some experts may use ESG interchangeably with sustainable investing which further breaks down into:

  • SRI- Sustainable and Responsible Investing
  • Ethical Investing
  • Impact investment

These are just a few examples of an entire umbrella of investment approaches that smart investors use nowadays. Over here, you can check out how SRI investing and ESG investing compares.

Five Reasons Why Investors Should Keep ESG in Their Investments

ESG investment has gone a long way from its initial Who Cares Wins report. This report promoted socially and environmentally conscious companies, which was the premise of ESGs.

In the business arena, there are currently ten significant trends that are etched in ESG investing. For instance, in 2016, businesses managed $30.7 trillion worth of assets under these ESGs.

If ESG investing has been on your to-do list, here are a couple of ESG trends that corroborate with your decision:-

1. Climate Change Threatens Our Very Existence

Decades ago, climate change was just something we’d hear that it was on the brink of happening. Decades later, and we are confronted with the harsh realities of climate change. 

It is evident in the increasing forest fires, the melting of our snow caps, and the unpredictable weather conditions. It’s no secret that huge multinationals are the main culprits engendering this climate change.

Fortunately, scientific innovation has led to mitigation techniques to curb these companies’ environmentally polluting effects. That way, companies can still maximize profits without necessarily being detrimental to the environment.

ESG investment focuses on companies that have adopted environmentally conscious manufacturing operations. In choosing ESG investing, you’ll not only be making a financially prudent decision, but you’ll also be doing the environment and the earth a huge favor.

2. The Increased Mortality Rate

In case you didn’t know it, human beings are living longer than ever. Life expectancy is set to be longer than ever, thanks to improved living standards.

There’s both a good bit and a not so good bit to this improved life expectancy. The good bit is that this is proof of improved living conditions worldwide. The bad part is that sustainability issues will affect the majority of the human population.

With that in mind, ESG investing seems a reasonable measure to decrease the impact of the sustainability issue on the general population. The more people there are, the more people have to suffer the consequences.

In fact, the issues of unsustainability will affect not only our children but also our older generation before their time has come.

3. The Social Media Wave

Nowadays, everyone is on social media, and businesses could leverage social media to their advantage as a pretty effective marketing tool. 

Besides its marketing potential, social media can transform entire cultural norms. It can also alter complete consumer preferences or even market trends.

Keep in mind the social media wave is currently premised on sustainability and ethical justice. What some thought would be a passing wave seems to be here to stay.

If you do your homework, you’ll find the most ‘green’ companies or socially-conscious companies attract the largest social media following. This social media following translates to higher sales and profit margins for these companies. Thus, your investment pays off.

4. Good Governance Is Increasingly Important

Governments worldwide have had a lot to learn from the financial crisis of 2008. This event demonstrated the importance of heeding issues of culture and conduct, even in top-tier governance.

The world still feels the impacts of the 2008 financial crisis to this very day. The event stresses the importance of good governance, even in our investments and public to private partnerships. 

Failure to do so could have disastrous effects in our financial situation not just as investors but as an entire country. 

5. The Public-Private Partnership Growth

Public-private partnerships have been on the rise, with the federal government being heavily involved. The government could tackle social concerns and foster infrastructural development through these partnerships.

The private market has bolstered social investments for the mutual benefit of each party. Through EGS investments, investors can play their part in nation-building while making a killing while they’re at it.

ESG Trends for a Brighter Tomorrow

There are plenty of reasons why ESGs are the way to go when it comes to investments. On one-hand, you invest in a worthy cause and also have profit-generating assets that are backed by the government.

These ESG trends will really come in handy when you’re making huge investments that could benefit generations to come. Try the ESGs approach today; you won’t regret it.

For more information on ESGs, be sure to check out our other pieces and expand your ESG knowledge store and do some proper investing.

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