ESG investing is a form of socially responsible investing. This approach involves evaluating potential investment opportunities based on ESG criteria, enabling companies to achieve financial returns while also contributing to sustainable development. ESG stands for “Environmental, Social, and Corporate Governance”.
ESG investing has emerged as a significant global trend, gaining momentum worldwide. Essentially, ESG investors prioritise environmentally conscious companies, uphold responsible corporate practices, and are managed by transparent and accountable leaders.
Adherence to ESG criteria often involves ethical considerations that may not always align with purely financial interests. For instance, industries such as weapons, tobacco, or gambling have traditionally been highly profitable but fail to meet modern sustainability standards.
What is ESG?
ESG refers to a set of standards used to assess potential investments based on their impact on society and the environment. The term ESG was first introduced in the “Who Cares Wins” report in 2004 as part of the UN Global Compact initiative.
ESG investing criteria
- Environmental criteria consider a company’s interaction with the environment, including its carbon footprint, use of toxic substances, and animal testing practices.
- Social criteria assess how a company treats its employees, customers, and suppliers, as well as its broader interaction with society. Key aspects include working conditions, respect for workers’ rights, equal treatment of diverse social groups, and efforts to combat racial and gender discrimination.
- Corporate governance covers all aspects of company management, including the fairness of executive salaries, relationships with shareholders, and readiness for modernisation.
By applying ESG criteria, investors can gain a more comprehensive understanding of the companies they are considering for investment. This approach not only helps to minimise risks but also identifies potential opportunities.
