Introduction
Environmental, social, and governance (ESG) factors are increasingly being taken into account by investors. But what exactly does this mean and where did it come from? This article will take a look at the reasons behind the rise of ESG in investor considerations.
ESG has changed what investors value.
ESG has changed what investors value.
ESG is a broad term that covers a range of issues, including environmental impact, social responsibility and governance. It’s now a key part of the investment process as companies are more interested in the environment and social aspects of their business. And this means that those seeking to invest need to ensure they are making wise decisions when choosing which company to buy shares in.
Concern over sustainability floats all boats.
ESG is a broad term that refers to the evaluation of companies based on factors other than just their financial performance. These include environmental impact, employee relations, and corporate governance. A company’s ESG profile can be an important consideration for investors looking to put their money into sustainable investments.
The sustainability movement has grown significantly in recent years due to growing consumer awareness of sustainability issues and efforts by governments and NGOs alike to encourage more responsible business practices. This means that more investors are thinking about how the companies they invest in will perform over time — and whether those companies’ actions reflect these values or not.
The shift started with large institutional investors.
- According to a 2016 report from the Global Investor Survey, 55% of institutional investors consider ESG factors when making investment decisions.
- This is compared to only 30% of individual investors who say that they consider ESG factors.
While this may seem like an obvious difference, it does warrant further investigation. Individual investors tend to have smaller portfolios than institutional ones, so even if they were as concerned with ESG issues as large funds are, their potential impact on company performance would be much less.
Investors now expect companies to act on ESG factors.
In addition to being more aware, investors now expect companies to act on ESG factors. They want to know how a company is managing its environmental impact, how it is addressing social issues within the supply chain and what steps are being taken by the firm to ensure that all stakeholders are treated fairly and ethically.
Companies need to disclose ESG information in their annual reports in order for an investor to take action on an issue they’ve raised. This not only allows investors to make informed decisions about their own portfolios but also helps companies understand how their actions could impact future business prospects (or lack thereof).
ESG data is more transparent and accessible than before.
When it comes to ESG data, the world has changed.
ESG data is more transparent and accessible than before. In the past, investors had to rely on company reports or call their broker for information about a company’s environmental and social practices. Nowadays, we have access to more information than ever before — and that includes ESG data!
One of the main reasons that this is possible is because of our increased use of digital technology. In fact, according to a recent report by Deloitte LLP (the “2019 Digital IQ Survey”), 91% of investors use some form of digital technology when making investment decisions today — a huge increase from just over 50% in 2016 (the last time they conducted similar surveys).
Investors now embrace consideration of ESG factors in their investment decisions.
In the last decade, a growing number of investors have begun to embrace consideration of ESG factors in their investment decisions. Not only are they now taking into account these broader factors when making investments but they are also using ESG data to make better decisions and help companies improve their performance.
In essence, this is good news for everyone involved: investors see a bigger picture when it comes to understanding the value that companies bring; companies can use ESG data to improve their environmental impact and social responsibility; and society benefits from cleaner air and water, safer workplaces, less pollution and more responsible lifestyles.
Conclusion
As we’ve seen, ESG investing has grown in popularity as investors have increasingly demanded transparency from their portfolio companies. Since the financial crisis of 2008, investors and companies alike have become more conscious about sustainability and social responsibility, and this has led to a dramatic shift in how ESG is perceived by the investment community. This trend may continue to gain momentum if there continues to be a rise in public awareness of environmental issues like climate change and global warming — which are very much on the minds of our generation today.
