Investment is a great way to gain some profit. It is possible to find various projects for this purpose from small to large ones. Some potentially profitable projects can, unfortunately, be harmful to the environment or bring other negative results. Humanity needs to make wise decisions on how to ensure economic growth without causing any harm. This is where ESG investment can be applied. Learn more detailed information on what it is.
So, what is ESG? The abbreviation stands for Environmental, Social, and Governance. It means investing money in companies whose activities will not cause any or much harm in various fields. ESG covers a large variety of topics.
For example, the environmental part includes the following:
The social part covers the following issues:
Governance is about the following matters:
It is recommended to familiarize yourself with recent research on this topic which will provide you with more insight into the ESG investment.
In simple words, this type of investment allows making the world a better place. In essence, the companies that you are about to invest your money in care about the possible impact that they may make. You can learn more about the possible risks of ESG investment here.
Generally, the demand for companies that conduct their businesses responsibly in terms of ESG criteria is growing. While the return on investment is important, people also want to mind potential negative impact. However, there is also a practical aspect to this approach. Companies that care about the environment and other important factors will not likely appear in problematic situations like the Volkswagen emissions scandal. Therefore, opting for EGS investment is also safer. Check out more pros and cons associated with this type of investment.
There are two main ways to find perfect companies that match your expectation for ESG investment. They include the following:
In the first case, companies will publish relevant reports. This is how potential investors can find out about the business’s goals as well as the progress of their fulfillment. These are sustainability reports that should be published regularly.
You can also go through third-party sources. Those can be a list of the best companies suitable for ESG investment such as MSCI ESG Ratings. Since it is an investment, it is also important to mind the company’s profitability. You can get the list of companies with positive ESG ratings and check their previous results.
An ESG rating is created by MSCI which is a US finance company headquartered in New York City. Thanks to this rating, it is possible to measure the level of a company’s resistance to various types of long-term risks.
The companies are categorized in the following way:
The following are the characteristics of each of the categories:
All in all, when choosing companies for investment, it is recommended to pick those from the leader and average groups.
Not only is it important to have a deep understanding of what ESG investment is, but also how it works. Let’s have a look at the main criteria:
Opting for an ESG investment is not only about being a responsible citizen (which is also highly important) but also about avoiding a variety of risks associated with harmful corporate activities. Today, every investor can access the list of companies that have a high ESG rating. This allows finding companies from various industries that match the high standards in terms of taking care of people and the environment.