Solution
Sajina answered on
Nov 07 2022
Investing in ESG is likely to lead to long term outperformance 1
INVESTING IN ESG IS LIKELY TO LEAD TO LONG TERM OUTPERFORMANCE
Introduction
Whatever we invest, its income is called a business asset. Financially, businesses are mostly profit oriented. For example, when we buy or sell a stock, we look at its profit. Even if we are going to study a course, we look at its profit. Before we invest, we research a lot about that company. We invest in a company by looking at how much debt, how much profit, income and expenditure figures, its working condition and environment, etc. it is in anticipation of profit. But ESG investing is not only about profit and loss but also about 3 other things.
ESG stands for Environmental, Social and Governance. Companies rated as ESG investments are supposed to be doing things that are good for the environment and social causes. The idea of ESG was started by the United Nations in the 2000s, as a way to highlight the industries that were doing well in the world.
ESG investing refers to a set of criteria for a company’s behavior that socially conscious investors use to screen potential investments. Environmental standards consider that, before we invest in a company, we check whether that company has environmental problems or problems due to pollution. They check whether they use renewable energy, are aware of their environmental footprint, and see where they dispose of their waste.
Social standards refers to checking how a company treats its workers, whether they provide the conditions they need, whether human violation is taking place, whether their productivity and benefits are good or bad for society.
Governance deals with whether their board of directors is managing things co
ectly, whether what they are doing is transparent, whether they are manipulating anything internally, whether they are following rules and regulations, many things are being looked at.
Since all these factors are inte
elated and interlinked, so each factor has its own importance.
Key Issues and Terms
Building an ESG-friendly company is no small task. Even if all these factors are true, if something goes wrong, it is very difficult to overcome. Investing in it is the same. Choosing a company to invest in that is ESG friendly can also be a difficult task. Before that, what are its components and we need to learn more about it.
Waste management is one of the most challenging. The environmental damage it causes now and in the future is not small. But often the main problem that many companies have to face is waste management. Adopting an environmentally friendly way of waste management is a challenge for a company that wants to work towards ESG performance.
The point is that you cannot hold all the shares available in the market. After all tobacco and alcohol, two industries shunned by many ESG investors. They have historically generated above-average market returns and backed bearish trends.
Climate change and natural disasters are critical factors. Infrastructure and property losses caused by climate change are already affecting the long-term financial sustainability of organizations. Many investors look to assess a company’s values and its ability to predict and respond to various climate threats when assessing its ESG profile.
From a societal perspective, the issues...