What is ESG and how can it affect your investments?
Want to know what ESG is? Then you're in the right place!
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If you still don't know what ESG (Environmental, Social and Governance) is and the importance this acronym has for the investment market, you need to pay attention!
Profitability is certainly one of the main factors when choosing an application. However, more than ever, people are paying attention to how organizations deal with social issues and the environment.
In other words, companies that value people's well-being and environmental preservation are gaining a competitive advantage and the preference of investors.
And that’s exactly what the acronym ESG is all about! Want to know more about the subject? Then keep reading.
What is ESG?
ESG is a set of actions and practices whose main objective is to define whether an organization has social and environmental responsibility.
The concepts that give rise to ESG, Environmental, Social and Governance, bring a more sustainable view to a business's strategic decisions.
Together, the three concepts represent a change in the way we think, make decisions and invest.
However, just knowing what ESG is is not enough, as it is necessary to better understand in which context the three pillars fit.
See some practical examples to understand how ESG appears in our routine:
Environmental
These are the company's actions focused on the environment, which involve issues related to the consumption of natural resources, energy efficiency and waste management.
Social (Social)
This factor takes into account how a company deals with issues such as diversity, inclusion, relationships with employees and customers.
People no longer want to become consumers or shareholders of companies that do not respect the rights of their employees, the concerns of their customers and, most importantly, that do not have a social conscience.
Governance
Here, the focus is on the management of the company, which must have good corporate conduct.
Transparency in management, ethics and agility in processes are some factors that are part of the third pillar.
ESG in practice for organizations
There are several initiatives and elements that help companies adapt and measure risks from the perspective of each of the pillars.
It's about looking at the company and understanding whether it's really committed to sustainability actions in the long term, that benefit people and the environment.
Delivering profitability to shareholders continues to be important. However, there is something that has become even more essential: generating value for the community in which the company operates, that is, for society and its employees.
After all, a company that is not committed to social issues and does not value those around it will lose its competitive advantage, which will certainly reduce the interest of investors and the market in general.
ESG and its impact on the investment world
Many stockbrokers are already offering ESG investment funds, that is, funds from sustainable companies.
This certainly shows how much companies must prepare for the new scenario, as ESG funds are attracting investors' attention.
This means that in the investment sector, the search for companies that respect ESG fundamentals and are committed to sustainability is increasing.
In fact, according to a survey by Deloitte, 75% of global investors applied ESG indicators in at least part of their investments.
This list is only growing and investors already know that issues related to social and environmental responsibility influence the market value and reputation of a business.
ESG and the impact on consumers
Just like investors, consumers also keep an eye on companies that truly care about the well-being of their employees, social and environmental issues.
In other words, an organization that puts profit above all else, even when it will harm society as a whole, has its reputation affected in the eyes of consumers.
This means that people want to become loyal customers of truly responsible brands, which, although they care about profit, do not leave other important issues out, such as sustainable investment.
But what many people don’t know is that this scenario also affects investments.
There are several factors that affect the price of a share. The company's financial situation is one of them.
For example, a company that has recently been involved in a scandal and has lost customers may also lose investors. As a result, the company's shares will likely fall.
How to make sustainable investments?
There are already some options for making sustainable investments:
Investment funds
ESG investment funds are those whose purpose is to make investments in businesses committed to society, the environment and high governance standards.
To define them, the three pillars of ESG are used.
The main characteristic of an ESG fund is the careful selection of companies that will make up the funds and receive their investments.
Actions
Shares are defined as the smallest fractions of a company's share capital.
This means that when an investor acquires a share, he becomes a partner in it.
There are several factors that can make an investor choose to buy shares in a company.
In addition to profitability, it is very likely that the investor will carry out an analysis to find out whether the values of a given company are aligned with their principles.
ETFs
ETF stands for Exchange Traded Fund.
Therefore, when we look at the combination of the acronyms ETF and ESG, we can understand that we are talking about funds that replicate a sustainable index, allowing exposure to investments of this type.
Conclusion
In this article you discovered what ESG is and ways to invest.
Currently, we notice that organizations are increasingly concerned about adopting social, environmental and governance practices.
In the world of investments, the demand is for companies committed to social and environmental issues, which generate positive impacts and which go far beyond the financial aspect.
