What is ESG?
ESG stands for Environment, Social, and Governance, and is a set of criteria that investors are considering in searching and filtering companies that are “socially responsible”.
Is ESG the same as corporate social responsibility?
Corporate social responsibility (CSR) and ESG are related, but these two terms do not mean the same idea. CSR refers to practices and policies undertaken by businesses intended to have a positive influence on the community, in addition to maximising profits. ESG on the other hand is the criteria for assessing the corporations’ impact and initiatives towards being socially responsible.
How can financial services use ESG initiatives to help build a brighter future for all?
As the importance of environmental and social responsibility gains momentum, the financial services industry is stepping to the forefront.
These approaches to investing may be suitable for clients concerned about where and how their money is invested and;
- Want to invest based on their values or moral concerns
- Believe both financial and non-financial factors can impact on investment performance
- Want their investments to generate a positive social or environmental impact, as well as a financial return
As part of their investment process, a fund manager can consider environmental, social, and governance factors.
Examples of ESG factors
Environmental – Among the company’s environmental standards are its use of energy resources, policies on waste management, and commitment to net-zero emission and climate change goals.
Social – Social criteria cover social relationships focusing on management and employee relationships. Among these are human rights, worker’s rights, workplace policies, employee wellness and training, and diversity, equity, inclusion.
Governance – Governance criteria include issues and efforts involving decision-making, and corporate cultures of transparency, accountability, inclusivity, and compliance. This also includes the relationship with stakeholders, such as shareholders, investors, and customers.
Sustainable investment products that are meeting client demand
The ESG product landscape is shifting. Investment managers continue to diversify their product offerings away from negative screening. Firms are launching products that integrate sustainability factors and quantify the investment’s impact on individual E, S, and G factors.
As many investment management firms fully integrate ESG within the investment decision-making process, collaboration between ESG specialists, whose sole responsibilities involve conducting ESG analyses, and traditional portfolio managers will likely become an important component of successful implementation of the sustainability ethos.
Investment managers may alleviate concerns from regulators and investors by conducting a holistic review of ESG investing related disclosures and implementing compliance policies consistently throughout a firm.
More than a buzzword
ESG is more than just a buzzword, it is a sound strategy for sustainable growth and development but also includes achieving net-zero emissions, taking good care of your employees, and transparency in the decision-making process. All these elements contribute to becoming a successful business and will help people improve their lives for the long term.
If you need some advice or guidance regarding investments, get in touch with our Wealth Management team today.