It’s time to live and invest responsibly
As responsible investors, we will certainly expect that making money deserves the same social, environmental, and ethical conformity. And that is where ESG steps in.Updated: May 21, 2020 14:56 IST
While the Covid-19 pandemic has dealt a crushing blow to our fast-paced life and our quest for more, there are some very encouraging signs that we cannot ignore. We humans have slowed down, and with that, Mother Nature has begun her process of healing. We are seeing miracles around us every day, making us aware of what we have been missing and where we may have gone wrong. Hopefully, we will change the way we think, live, work, and invest. However, it will be wrong to assume that this is a wake-up call given by the pandemic alone. For some time, the movement has been building up and the current crisis could accelerate the change.
The world over, consumers are demanding that brands and corporations carry out business responsibly. Consumers are consciously driving sustainability by preferring brands that are seen as responsible and care for the environment and society at large. This change is being strongly driven by Gen Z and millennials. As per a global study by AC Nielsen#, 97% of Indians felt that it was very important for companies to implement programs to improve the environment.
In such a scenario when we don the investor’s hat, we cannot ignore this big change that is likely to impact corporate performance and profitability. As responsible investors, we will certainly expect that making money deserves the same social, environmental, and ethical conformity. And that is where ESG steps in.
ESG (Environmental, Social and Governance) investing refers to a theme of investing that is also known as ‘sustainable investing’. This is an umbrella term for investments that seek a balance between positive returns and long-term impact on society, environment, and business governance and performance. Responsible investors evaluate companies using ESG criteria as a framework to screen investments or to assess risks in investment decision-making.
ESG investing essentially focuses on investing in companies that have sustainable practices and are therefore more aligned to the sweeping changes engulfing the world. Such companies often have a strong reputation and enjoy loyalty and continued business relationships. They are more likely to enjoy a price premium over non-ESG competitors, have lower funding costs and much lower business, compliance, and governance risks. Conscious business practices that are sustainable in nature translate into a higher potential for growth and profitability and therefore, a higher opportunity to grow investor wealth.
While finding good companies to invest is in itself a very challenging task, the issue gets compounded further when looking at ESG compliant companies. However, there is help at hand. Some of the leading fund houses have launched their ESG fund in recent times, and the acceptance of these funds and the performance so far have been very encouraging.
Covid-19 has made us realize that humanity is living on limited time and resources, and sustainability is no longer a choice but a necessity. As a consumer or as an investor, whatever lens we may use, the path we must choose ahead is crystal clear. We have a responsibility to leave a comfortable and healthy world for the future generation. It’s time we earn returns responsibly!