What is ESG Investing?
ESG is a style of investing. Traditional fund managers look purely at a firm’s potential return. The ESG method adds three filters to the selection process. These include; Environmental, Social and Governance.
Efforts to preserve our environment have intensified in recent times. Countless initiatives signed on global and local scales. From countries agreeing on O2 emission quotas to material-specific wheelie bins in our neighbourhoods. In the midst, companies have become conscious of their surroundings. This filter looks at steps a company takes in becoming environmentally efficient. From recycling and water usage to its community involvement.
We all know someone who complains about ‘just being a number’ at their workplace. This type of attitude is both unhealthy for an employee and counterproductive for the firm. The way a firm treats its employees and customers falls under the Social filter.
Where the first two filters focus on a company’s policy, Governance looks at its hierarchy. Are the people in charge well equip for their roles and are they rewarded justly? We’ve seen bonuses paid to bosses with workers being made redundant during the same period. Legally there is nothing wrong with this, but is it right morally?
It’s clear that all three filters have one goal in common; they aim to promote long term sustainable growth.
As more and more firms share their information, ESG fund selection grows in popularity. In 2018 ESG funds had over $20 trillion AUM. This figure is likely to rise along with the growing demand for Socially Responsible Investing.