News & Blog

Wikimedia Commons

Why Are ESG Principles Important to Investors?

Published on November 30, 2021

ESG principles are important to investors as an indicator of long-term financial value.

The lens of sustainability brings transparency to business risks and the mitigation plans created to address those risks. How much or how little a company manages those attributes ensures or detracts from a business’s long-term resilience.

Environmental, social, and governance or ESG principles treat global issues as financial risks, give incentives for socially responsible investments and confront problems that have dominated contemporary conversations on sustainability and social justice.

What Is the Framework for ESG?

Every business is connected to environmental, social, and governance issues in one way or another. Implementing and marketing ESG efforts simply means that a brand has the self-awareness to recognize their place in the world and the ambition to improve on it.

ESG stands for environmental, social, and governance. Each of these criteria can take on different industry-specific meanings and applications, but generally these factors all follow the same framework:
• Environmental factors measure a company’s impact on the environment, from carbon footprints to sustainability initiatives and everything in between.
• Social criteria reflect a company’s relationship with its employees, customers, suppliers, and communities.
• Governance factors evaluate how companies are run at an executive level. Leadership compensation, diversity, and responsiveness to shareholder feedback are all taken into account.

How ESG Works

Like any effective investment strategy, ESG works by identifying, measuring, and tracking metrics related to your corporate purpose. Although each company comes with its own industry-specific set of ESG priorities, progress can generally be tracked by answering a few fundamental questions regarding potential investment opportunities:

For environmental factors:
• How large is this company’s carbon footprint?
• Is this company safely disposing of industrial waste and avoiding unnecessary pollutants?
• Is this company undertaking any substantial sustainability or conservation efforts?

For social factors:
• Are this company’s hiring practices inclusive?
• Are career advancement opportunities in this company equitable?
• What are this company’s current philanthropic initiatives?

For governance factors:
• Does this company have a diverse C-suite and boardroom leadership team?
• Are this company’s shareholders able to practice their established rights?
• Is this company responsive to shareholder feedback?

What Is Impact Investing?

Impact investing deploys capital actively to make the world a better place. By applying ESG principles, impact investing aims to achieve long-term financial success through meaningful, purpose-driven financial practices. Increasingly, individual investors and family offices seek out companies that reflect this sustainable approach to asset management.

In recent years, ESG investment opportunities have proven to be an effective means of increasing capital gains on top of the intrinsic environmental, social and governance implications. There’s no shortage of mutual, index, and exchange-traded funds with an emphasis on ESG criteria.

Just last year, ESG funds accounted for about 25% of the money that poured into all U.S. stock and bond mutual funds, more than doubling from 2019. Publications and research organizations such as Forbes and Just Capital compile the highest-performing ESG funds across industries and indexes.

Why ESG Is Important Work for Companies

Companies have the chance to pair their values with meaningful financial actions, especially when shareholders and customers alike are galvanized by climate change, racial equality and financial disparity. The national and global risks in an ESG assessment are issues that investors and customers alike experience in their day-to-day lives.

Every business is connected to environmental, social, and governance issues in one way or another. Implementing and marketing ESG efforts simply means that a brand has the self-awareness to recognize its place in the world and the ambition to improve on it.

ESG principles have risen to the forefront of the investment landscape in short order, evolving into the new standard for responsible, communal investment among purpose-driven companies. There’s no better way to communicate a brand’s purpose-driven responsibilities while managing assets conscientiously. There’s no time like the present to invest in the future.

Meet our purpose branders Special report: from brand positioning to purpose positioning Our social impact
X

Download Report

As soon as you submit the form, we will send to you a link to download our report.