Socially responsible investing is the new trend, and investors and providers are scrambling to get on board. However, the field of sustainability is still "emerging," which makes it pretty challenging for companies to win the tag sustainable without greenwashing. In this post, we take a closer look at ESG investing to determine what it is and its associated benefits.
What is ESG Investing?
To demonstrate what ESG investing is, let’s go back to the basics. Environmental, social, and governance (ESG) is a term applied in corporate governance where companies focus on responsible operations. They target to identify their impacts on the planet to try and make it a better place.
ESG investing is a type of sustainable investing where environmental, social, and governance are used to gauge the overall impacts and returns. Investors look at the targeted investment’s ESG score to determine whether it is sustainable. In the United States, SIF Foundation’s 2020 trend report showed that assets that were under the management of ESG strategies increased by USD 17.1 trillion at the start of the year. That was a 42% jump from USD 12 trillion reported in 2018.
How is ESG Score Calculated?
When investors are scouting for ESG investments, the first thing they check is the ESG score. Companies with higher scores are considered sustainable, but how is the calculation done?
We must say that the idea of ESG sustainability is still young and there is no single authority responsible for the score. Most stock markets have their ways of gauging the sustainability of a company. For example, the Hong Kong Stock Exchange (HKEX) has a comprehensive guideline for ESG reporting for all listed companies.
The reports that companies publish are evaluated alongside their financial performance to determine the ESG score.
To get a high ESG score, your company has to adopt sustainability in its system and report it accurately. Remember that the information you provide must be accurate and verifiable. If you say that the company managed to cut emissions by 30%, can the information be verified?
Benefits of ESG Investing
The current growing demand for ESG investing is huge. This is driven by the emerging realization that supporting responsible brands can help solve issues facing the planet. If a company has adopted strategies to cut down emissions, supporting it will encourage others to follow the same trend.
Ultimately, it will become easy to cut down harmful greenhouse gasses (GHG) to counter the threat of global warming.
Other benefits of ESG investing include:
- Green investing guarantees better returns compared to traditional investing.
- It offers investors an opportunity to help in addressing challenges facing the planet.
- Incorporating ESG factors in investing results in improved risk management.
- It is helping to increase companies' focus on sustainability at all levels, from governance to product development.
- ESG investment is helping to push the adoption of green initiatives in company operations.
- Brings investors and companies of interest closer for better engagement.
Work with Diginex.com to Improve Your ESG Score
The benefits we have listed above are only a few of what ESG investing can yield. So, is your company sustainable? You cannot afford to be left behind because every stakeholder is interested in sustainability. To operate sustainably, Diginex.com can help.
We have experts in sustainability matters, and they can hold your hand all the way. They understand the process of ESG sustainability reporting and can guide you to follow the selected framework, from the Global Reporting Initiative (GRI) to the Task-force on Climate-Related Financial Disclosures (TCFD). This is not all.
Diginex.com will also help you to improve your brand strategy to increase ESG score. No matter what challenge might be on the way, we will be there to ensure you overcome it. So, talk to our experts today to learn more about ESG investing and start making your company more sustainable.