ESG stands for Environment, Social, and Governance which is a new way in which investors look at the idea of investing. They give importance to non-financial factors as a vital part of their analysis and help them identify material and non material risks along with growth opportunities. This specific guide takes externalities, fiduciary duty and disclosures along with other eminent ESG issues into account. As reported , ESG themed investing is the future of investing patterns and corporate reporting confirms so. Governing bodies such as Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD)are working towards standard formation and materially defining such factors in the investment process.
Trends seen under ESG Investments
Due to the emergence of Covid-19 , a strong interdependence between the financial system and sustainability has emerged and been recognized. Valuable research, discussion practitioners and experts are in the process of increasing in number and volume to facilitate better ESG investing among the markets.
Some of the Non- Financial factors that are important to ESG investing are listed below
Environmental factors
- Water scarcity
- Deforestation
- Water and air pollution
- Carbon emissions and climate change
- Water scarcity
- Biodiversity
- Efficiency of energy use
Social Factors
- Human Rights
- Customer Satisfaction
- Labor Standards
- Engagement of the employees
- Diversity and Gender
- Relations in the Community
- Protection of data and privacy
Governance factors
- Political contributions
- Corruption and Bribery
- Compensation for the executives
- Composition of the Board
- Structure of the Audit Committee
- Lobbying
- Schemes for whistleblowers
Metrics under ESG investing
To be frank, the metrics of ESG investing are more subjective than objective as there exists no standardized approach to the calculation or presentation of them. There are many permutations and combinations to analytically approach and source data to address ESG considerations, that include weighting out client interest and also the potential value. A clear understanding of the relative merits and shortcomings of various metrics can help in formation of better ESG opportunities and risks.
The SEC has always emphasized on climate transition towards a net zero economy likely to be achieved by 2022. Due to recent supply shortages in natural gasses and increased energy prices globally, energy affordability ,maybe vastly impacted.2022 may see tensions in practice of renewable energy transition. Products that are produced in developing countries may have carbon tax implications when imported.
ESG investing and analysis has quickly become one of the increasing interests to the professionals who are globally distributed , are asset owners, and also include high- net-worth investors that consider the impact of ESG factors in the local markets and their investments. Stakeholders and shareholders are expecting a transition towards more environmentally, economically and socially sustainable business activities that will support future generations in their endeavors. With the help of ESG benchmark identification, the organizations can set robust targets which are material to them and can set themselves up for success. Investing has become a tool to vote in change using
