A lot of businesses have now transcended the product’s price and quality. These days, people have been taking into consideration how businesses operate. This does not only happen between buyers and sellers but also investors. One of the criteria that people are starting to adopt is the environmental, social, and governance (ESG) criteria. Though implementing the criteria is not as easy as it sounds, it is slowly gaining recognition in the modern world.
Environmental, social, and governance (ESG) criteria in detail
Socially conscious investors have started to adopt these criteria upon making their decision. Investopedia explains that in ESG, investors pay attention to how certain companies operate while maintaining environmental sustainability. Investors also go over how companies bond with people closely interacting with them. This includes employees, suppliers, customers, and even communities where the companies operate. The last aspect investors take into account is the companies perform their leadership, executive pay, audits, internal controls, and shareholder rights. Investopedia further mentioned the ESG criteria is also known as sustainable investing, responsible investing, impact investing, or socially responsible investing.
Sustainable investing in practice
It is impossible to find a company that fulfills all three criteria of sustainable investing. Hence, investors who are plan to adopt the criteria in investing need to set their priorities first. To what extent do investors think certain companies violate the criteria? Are workplaces that discriminate their workers out of the list? How much of environmental sustainability is okay? Is animal testing okay? And the list goes on.
Environmental, social, and governance (ESG) criteria in the new age
Though responsible investing is undeniably good in respect of humanity, a lot of times such companies perform under “bad companies”, especially in revenue. Limitations of companies to invest in also affect investors’ potential profit.
However, the ESG criteria are slowly getting a better result. Investopedia‘s quotation of the US SIF Foundation’s report revealed that there is an incline as much as $8.1 trillion from 2016 in assets chosen by following the ESG criteria. Moreover, with how scandals such as BP’s 2010 oil spill and Volkswagen’s emission issue affected their stock prices, it is visible how people have been more conscious over environmentally-conscious companies.