Why Are Environment, Social and Governance (ESG) Factors Important to Today’s Investment Trends?
Who knows when sustainable and ethical investment strategies became a factor to be considered by asset managers, investors and shareholders? The global investment focus of investment managers, investors and shareholders is shifting. What is being seen is transfer of wealth to millennials, an increase in the costs and risks, disasters in the environment and enhanced management performances using practices that are controlled.
The essence of environmental, social and governance (ESG) factors in making decisions for investments is seen by a large percentage of executives as significantly vital to their decisions on investments. The only issue is that only 60% of firms have a management strategy with 25% having a business case that is clear for upholding.
ESG includes a broad range of results on the return and risk values of any investment. Reputational or strategic risks, direct impacts on finances, business ethics, and regulation changes are some issues that can affect any investment. Clean technology, pollution, climate change, waste and natural resources are some enviromental risks. Human resources, human rights, local community, and health and safety are the social risks included. The risks involved in the governance factor are board and shareholder levels, employee conflict of interest, reporting, regulation, and compliance.
The changeover from approaches that are purely important to considering medium or long-term results for the decisions we make for our businesses on ESG will have an effect on the market. The effect will be on multinationals, listed businesses, large corporates, healthcare, agribusinesses, supply chain, manufacturers, suppliers, and small to medium businesses. The drive in our economy is capital flow and investments, the complex ecosystems of the worldwide economy knows the value of observing ESG strategies where funds should be invested.
Other countries do not deem the ESG business policy as cost effective so they are trying to evaluate it. Those countries don’t think that reporting ESG for listed business is not important, further even investing in risk reduction strategies is low.
The collection of environmental results on business operations can be different meaning some companies can benefit from them more than others. It is challenging to enumerate environmental risks because it is not easy to monetize it but the key driving force is changing over to an economy of low carbon. There’s need to invest in a low carbon economy by improving water, waste and energy effeciencies through the use of clean technologies.
Social risks and impacts need analyzing of intangible characteristics of an investment that cannot be seen on balance sheets. Such traits include sustainable supply chains, community engagements, health and safety, customer relations, employee productivity and culture. Improving on ESG performance is the chance that any listed or private business has.