ESG

About ESG

ESG

ESG performance is a term that covers “Environmental, Social, and Governance” performance. It includes ESG policies and ESG practices as well as other factors such as environmental impacts or labor practices.

ESG ratings are determined by management, ESG risks, policy to govern ESG considerations, and ESG performance.

These are used for investment research measuring the company’s rating on these factors in comparison to its industry peers or according to certain established benchmarks.

Investing in companies that make the world a better place is an option when you partake in socially responsible investing (SRI).

ESG investment is becoming more popular as a way to make an impact while earning strong returns. This type of investment also allows you to earn ESG accreditation through the Equator Principles and a rating, which identifies companies taking steps to reduce their ESG risks.

ESG ratings and research can give investors a leg up with their investment, as non-ESG securities usually don’t have as strong of a balance sheet or maintain consistent financial performance.

Plus, who doesn’t like investing in companies that are actually helping the world rather than hurting it?

What is ESG?

ESG is an acronym that stands for Environmental, Social, and (Corporate) Governance. ESG investing is sometimes referred to as socially responsible investing (SRI), sustainable investing, responsible investing, or impact investing.

While very similar, there are some differences.

SRI hails from the 1960s and 1970s, a time when “sinful” companies (e.g.- tobacco and alcohol) were starting to be actively shunned. Since then, SRI has remained mostly “exclusionary”, meaning that companies who had/did anything against the investor’s values were culled from their investment portfolio and excluded from a list of potential investments.

ESG is similar in that certain industries are mostly excluded, but it takes a broader stance by looking at the companies as a whole. Realizing that no company is likely to check all of the boxes that exactly align with an investor’s values, ESG provides a framework by which companies are “graded” on how well they perform in the three areas of: environmental impact (positive and negative), social performance (company culture, how well they treat employees, diversification, local community impact as well as society at large), and corporate governance (strength of board of directors, executive compensation, proxy access, transparency of communication). Buying stocks or funds that are planet- and people-friendly is becoming as important a goal among investors as saving for retirement. In response to crises tied to climate change and the global pandemic, as well as to pressing social issues such as income inequality and the push for racial justice, more investors are embracing the ESG investing movement in a bid to drive change and make the world a better place.