The world of investment is changing fast as investors adopt tactics that target not just the returns, but also on helping to make the planet a better place. They are incorporating granular data to help them narrow down to stocks, bonds, and other instruments that focus on sustainability. As a corporate manager or company owner, you should target achieving a high ESG score to become a revered pick by fund managers.
This post takes a closer look at ESG index funds to establish what they are and the strategies you can use to make your company more sustainable.
ESG index funds are types of mutual funds with portfolios focused on tracking the components of a selected financial market index, such as SPX 500 Index. Particularly, ESG funds target the segments of the market that focuses on sustainability. Therefore, they provide investors through investment firms with exposure to companies that are committed to wrestling down the challenges facing the planet.
Rather than selecting individual stocks, investors pick ESG index funds, especially when targeting long-term investing. The main advantage of index funds is that they come with lower expenses and fees compared to those managed actively. More importantly is that investors get the satisfaction that they are helping to overcome global warming, loss of biological diversity, and social injustices, among other issues on the planet. Some good examples of ESG index funds are Fidelity U.S Sustainability Index Fund (FITLX), the Nasdaq-100 ESG Index, and Vanguard FTSE Social Index Fund (Vftax).
So, does your company make the cut to win the consideration of ESG funds, such as iShares exchange traded fund (ETF)? You cannot be left behind because ESG integration can help you win more investors, improve company’s performance, strengthen your brand, and accelerate growth.
The realisation that human actions can help to address the threats facing the planet, especially global warming, has made governments, capital markets, investors, and consumers change their behaviour. Let's take the example of capital markets. Unlike in the past, when the primary parameter for listing in the stock market was financial performance, stock markets are now demanding a greater focus on sustainability.
In an equity market such as HKEX, only companies that have elaborate ESG plans and impact every year are listed. The adoption of ESG, according to HKEX guidelines, must be driven by top management and should demonstrate clear strategies for addressing even future risks. NYSE, LSE, and other stock markets also have clearly defined rules for sustainability.
As more stakeholders demand sustainable companies, how do you make your organisation more ethical and responsible? Here are some useful tips to consider.
When selecting stocks of interest for investing, the managers of holdings, ESG mutual funds and ESG index funds first look at the plans of the companies of interest. The plans are able to showcase the commitment of a company to promoting sustainability. So, make the plan robust by capturing the current status of the company, realistic goals, and how to achieve them. For example, targeting to achieve carbon-neutral status requires an elaborate path that includes things like changing lighting to LED lamps, installing new machines, adopting electric cars, and using solar energy.
Managers of ESG funds know very well that ESG risks are global. For example, wastes released by companies into the waterways are likely to have impacts far away from the disposal points. Therefore, you should focus on identifying greening initiatives both locally and away.
One high-impact option is supporting afforestation projects in the tropical region. Not only will such an initiative help to absorb excess carbon dioxide from the atmosphere, but also come in restoring natural habitats and enhancing biological diversity. Such impactful strategies would endear you to the ETF or fund’s managers, investors and strengthen your company’s brand.
One fact about sustainability is that you cannot achieve much when working alone. For example, you can only cut so much carbon dioxide emissions from the company, but the impact will be limited if all the neighbouring firms are still emitting. Therefore, you should work on a method of reaching out to more firms and convincing them to adopt ESG sustainability.
The best way to make your impact felt more and impress investors is to rethink the contractual agreements with other firms. Take the example of a manufacturer targeting to make maximum impact on society through ESG. In such a case, the manufacturer can recall the contracts with suppliers and add new requirements for ESG compliance. This can greatly improve your MSCI environmental, sustainability, and governance (ESG) score.
The whole idea of sustainability, especially in light of the unfolding regulations and focus on ESG index funds, can be pretty complex. Where do I start, and what strategies should I adopt? This is one question that keeps ringing in the mind of managers, but we have a solution: working with ESG experts.
An ESG consulting firm of experts, such as Diginex.com, can help simplify the entire process of ESG focus, planning and strategy implementation. Our experts are always at the top of the ESG policies and pack enviable experiences after helping other top brands. Therefore, you can count on them for ESG integration to make your company stand out.
The best thing with experts is that they comprehend how ESG index funds work and will ensure your firm enjoys maximum benefits from adopting sustainability. These include cutting down the operating costs, strengthening your brand, and better engagement with stakeholders. This might be the turning point you have been waiting for to take your company to the next level.
There is one more thing that you should have when integrating ESG into your company: working with the right ESG software. With the right app, you are able to gather data, analyse it, and make the preferred impact to investors or other targeted stakeholders on the local or global market. Some of the top apps that you should consider include diginexLUMEN and diginexESG. Contact our ESG professionals at Diginex.com for all the assistance you want on corporate sustainability.
The process of calculating the ESG risk score involves gathering information about the selected company and applying specific formulas.
ESG, the shortening for environmental, social, and governance, represent the criteria used to gauge a company's focus on sustainability.