ESG or Environmental, Social, and Governance is a set of standards that investors use to determine how socially responsible an organisation’s operations and standard procedures are.
It is used as the benchmark criteria to assess potential investments and is generally favoured by socially conscious investors.
For example, an investor who is concerned for the environment will undoubtedly want to consider how a company into which they invest manages its waste and recycling initiatives, writes Ashok Sardana, founder and managing director of Continental Group.
Equally, a socially conscious investor will look at how an organisation manages its employees and how they contribute to society in general. Social criteria can also include relationships with suppliers, vendors and the communities within which they operate.
In terms of governance criteria, they can pertain the wages of c-suite staff, an organisation’s leadership, as well as audits and the rights of its shareholders.
Social responsibility investment solutions
The global pandemic and climate change have resulted in many of us reviewing our values and concluding that we need to revisit plans for our future.
It is apparent, as we enter 2021, that people want their investments to carry more meaning than growth alone.
More investors are increasingly assessing and including other factors into their risk and growth analysis for investment returns.
ESG enables investors to avoid putting their money into companies that have not demonstrated their environmental and social practices.
Considering the above, it will come as no surprise that ESG is often dovetailed with socially responsible investing (SRI), which captures the social, environmental, and ethical beliefs of an investor in their portfolio.
Consequently, more and more companies and product providers are making complying and incorporating ESG/SRI the norm.
Incorporating ESG into the planning process
Careful consideration should be taken to review a vast range of practices in an organisation; such as company values, ethics, climate responsibility and culture.
For example, does a companies carbon footprint look excessive and what are their credentials like in terms of general pollution, including environmentally harmful toxic matter?
What is their approach towards energy in general, the treatment of animals and does this follow a socially responsible ethos? How, if at all, is a company managing these factors.
What are their reporting responsibilities in terms of complying with preset environmental regulations as determined by law?
When considering the social aspects of an organisation, first look at how they manage both internal and external relationships.
Do they aim to work with vendors and suppliers that also hold the same company culture values?
Do they contribute to the community? Do they encourage employees to volunteer and engage in charity work? Do they value and adopt health and safety procedures? Do they encourage a harmonious work/life balance?
ESG is fast becoming a vital component of client portfolios
It is clear, with a vaccine now being rolled out, that covid-19 is slowly becoming manageable, but it will reset of the economy of many countries.
It is already apparent that there needs to be a better balance between our social well-being and economic growth, but in line with ESG principles.
In the future, ESG will undoubtedly have a significant impact on how markets perform and contribute towards the state of a country’s overall economy.
Inevitably, this will lead to a more sustainable, ethical, and diversified investment approach and ultimately deliver a healthier world for future generations.
Return on investment (ROI) remains of paramount importance but many investors also care passionately beyond this.
They demonstrate concern about the impact companies into which they are investing affect global climate change in general. Thankfully, this trend is growing exponentially among seasoned and young investors, particularly millennials.
It’s now become the norm to publish ESG criteria, meaning that companies for the first time are having to fall in line or risk losing out themselves.
Now or later?
The Continental Group believes that ESG is having a defining impact in the long-term and is a trend.
Businesses with ESG frameworks in place around issues such as business continuity, employee health and safety, supply chain management, and climate change, will prove to be the most popular and resilient.
The goal remains to deliver stable and consistent returns, but in an ESG friendly format.
Beyond the peace of mind of having an ethical portfolio, we are witnessing that ESG investments can deliver similar returns as traditional investments. Surely, that is good for everyone?
With this increasing trend towards ESG integration The Continental Group identifies with such investments playing an important part of a well-diversified client portfolio to offer not only growth but a base that is ethically sound.
Importantly there is no suggestion that growth will be compromised. Far from it, such ESG friendly portfolios can deliver handsome returns for investors over the medium to long-term, within a well-diversified portfolio.
This article was written for International Adviser by Ashok Sardana, founder and managing director of Continental Group.
