Not only is ESG investing good for the planet, but it also offers multiple benefits to companies. As well as offering financial savings, ESG investing can also aid businesses with staff retention and ensure they keep the confidence of their investors.
What is ESG investing, and what are ESG investments?
Put simply, ESG investing is a way to build a more ethical portfolio. Its three components are concerned with the impact of an investment or the conduct of a business. ESG investments are concerned with these variables:
- Environmental - focuses on the impact on the environment. Common factors include carbon footprints and deforestation.
- Social - focuses on the impact on people. Common factors include human rights and diversity.
- Governance - focuses on the way a business is run. Common factors include corruption and lawsuits.
What is an ESG investment?
Some examples of an ESG investment include green bonds and investing in companies with a good human rights record.
Three benefits of ESG investing
- Financial savings. Environmentally conscious investing reduces the risk of damage to the planet. This can help save company profits and prevent the company from being sued for putting the planet at risk.
- Staff retention. Employees desire a sense of purpose and want to work for a company that embodies their ideals. If companies don’t adapt to these needs, workers may well abandon the company, causing a significant brain-drain and reduced performance.
- Increased investor confidence. With ESG credentials becoming influential, companies that don’t fall in line risk missing out on capital to grow their business.
ESG vs Socially Responsible Investing vs CSR
Although ESG is a well-known term associated with responsible investing, it is not the only one. You may also have heard of SRI and CSR. However, while these can sometimes be used interchangeably, there are some key differences between the terms.
ESG
As we have already covered, ESG is concerned with the impact of a company’s actions concerning Environmental, Social and Governance factors.
SRI
SRI also helps investors to ensure that their values and investments agree with one another. However, unlike ESG, SRI is much more concerned with personal values. For example, an individual opposed to smoking may practice SRI by abstaining from investments that involve a tobacco company.
SRI can also be referred to as “sustainable investing” and “ESG Impact Investing”. While these terms are similar to SRI and often broadly align with it, their definitions are not the same.
What is sustainable investing?
According to Harvard Business School “sustainable investing refers to a range of practices in which investors aim to achieve financial returns while promoting long-term environmental or social value”.[1]
What is ESG Impact Investing?
While traditional investments are focused on optimal returns, ESG Impact Investing prioritises having a positive impact on the world, whether that be through any of its three facets or a combination of all three.
CSR
While SRI and ESG are concerned with investing practices, Corporate Social Responsibility does not fall into this category. Rather, CSR is focused on a cause. This can range from renovating and rejuvenating a local community to benefitting the environment by ensuring no waste is left behind after a company event.
What can Apex Group do for you?
While businesses are increasingly turning to ESG Investing, we understand that there is no universal approach to dealing with the issue. That’s why our Ratings and Advisory service provides tailored ESG analysis across your entire portfolio, allowing you to match words with action. What’s more, our end-to-end service takes care of the entire process, so you can be certain that nothing has been missed out.
By working with Apex Group, you don’t have to worry about risks, changing regulations, underperforming returns, or investor pressure. We’ll take care of everything!
[1] Harvard Business School Online: What is Sustainable Investing?
