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What is ESG investing?

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Posted on February 2, 2021 | Industry News

Learn the role that social responsibility plays in the drive towards sustainable investing

The world is turning its focus towards sustainability, and more and more people are doing the same with their investments.

In the United States, about half of individual investors have adopted sustainable investing, while 80% of asset-owner institutions are integrating sustainability considerations into their investment processes. [1]

 

ESG investing is a form of sustainable investing that is growing in popularity. Join us to explore why.

 

What does ESG stand for?

Falling under the blanket term of Socially Responsible Investing (SRI), ESG is a system that’s used to measure the sustainability of an investment in three specific categories.

 

Those categories are Environmental, Social, and Governance. Let’s explore each factor in more detail:

 

  • Environmental: this factor looks at the measures a company takes to mitigate their impact on air, land, water, ecosystems, and human health.

 

  • Social: this factor looks at how the company manages its relationships with employees, suppliers, and customers. It also takes into account how the company impacts the communities in which it operates.

 

  • Governance: also known as corporate governance, this factor looks at how the company is run. It analyzes the company’s leadership and board, executive pay scales, diversity within the board of directors, and how it treats its shareholders.

 

What’s appealing about ESG investing?

ESG investing can be a good choice for investors who are looking to build a more ethical portfolio. It can also offer similar returns to traditional funds, with potentially less risk.

After looking at the performance of nearly 11,000 mutual funds from 2014 to 2018, a Morgan Stanley Institute for Sustainable Investing report showed that there was “no financial trade-off in the returns of sustainable funds compared to traditional funds, and they demonstrate lower downside risk.” [2]

ESG investments have also performed well during the turbulence of 2020. As can be seen in the chart below, a report analyzing investments for the first six months of the year noted that “sustainable funds weathered the period better than portfolios without a focus on ESG factors.” [1]

 

esg investing - chart

(source)

 

Why are so many investors choosing sustainable funds?

Along with seeing a healthy return, many investors seek to feel good about the investments they make.

ESG investing offers an opportunity to invest in companies that reflect the values of the investor and that are generating positive social or environmental impacts in the world.

As mankind continues to strive towards sustainability, it’s very encouraging to see that ESG investing is also on the rise.

By investing in more socially responsible, future-focused organizations, investors can both generate good returns and support the sustainability of the world around us.

 

How to keep traceability, disclosure, and governance over your social initiatives

To correctly manage your social initiatives, you need the right support. It’s key to have good processes, people, and systems to help your organization keep track and share the results of your investments with purpose and clarity.

A corporate social responsibility management solution, such as INFLOR Sociall, facilitates the control of contributions and allows managers to have access to all the information and reports they need for informed decision making.

Every detail of INFLOR Sociall has been designed to assist in creating connections between companies, institutions, and communities. It allows you to monitor, measure, control, and direct the private resources to be applied in social projects, providing complete transparency throughout the process for all parties involved.

 

Ready to explore INFLOR Sociall?

Find out more about INFLOR Sociall and request a demo today.

 

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Sources:

1: Morgan Stanley Institute for Sustainable Investing | Sustainable Investing During Coronavirus

2: Morgan Stanley Institute for Sustainable Investing | Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds

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