The core message of Earth Day 2022 is centred on how we can better “Invest In Our Planet”. This theme not only expounds on the actions we can take to make Earth cleaner and greener, but also to think about how we can put our money in companies that take conservation seriously.
With Earth Day falling on today – 22 April – it presents a good time to think about Environmental, Social, and Governance (ESG) investing. While it may be a relatively new term for some, it actually began in the 1960s as Socially Responsible Investing (SRI), with investors choosing to exclude stocks or companies that did not align with their personal values from their portfolios.
Today, ethical considerations and alignment with values remain common motivations of many ESG investors but the field has expanded to consider financial metrics as well.
There are three aspects to ESG investing:
E is for Environmental
E is for Environmental criteria; which may include a company’s energy & water consumption, waste production, resource conservation and treatment of animals. This guideline can also help evaluate and assess any environmental risks a company may face.
S is for Social
S is for Social criteria; which looks at the company’s business relationships. Does it work with suppliers that hold the same values as it claims to hold? Does the company give back to the communities or empower their employees to make a positive impact?
G is for Governance
G is for Governance; areas that offer insights into the company’s culture and efficacy. Investors may be interested to know about the accuracy and transparency of the company’s financial statements, or the extent of decision-making power vested in stakeholders.
At the end of the day, they are a set of metrics that helps stakeholders determine if a business is sustainable; albeit less “quantifiable” than other traditional methods. There are still many processes that requires refining and defining, but ESG investing definitely holds promise for the future and our precious planet.
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