Why Are ESG Criteria Important For Investors?

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There is a positive trend related to corporations, which is a tendency to be more socially responsible. The main factors are environmental, social, and governance and they are all part of the ESG criteria. It represents a report about some company and how it is dealing with various processes. For example, influence on saving of the environment, care about the workers, political involvement, and more. If you want to implement these factors in your business, it is important to learn more about what is ESG?

People are becoming more aware of the importance of making businesses more sustainable. Therefore, making a high profit is not the only thing to focus on anymore. On the other side, integrating modern strategies that will include social awareness can positively affect the status of your brand, making it more competitive on the market.

When it comes to ESG investing, it represents special model investors are using where they are targeting only those brands that are more progressive in terms of social responsibility, impact on nature, modern types of the business ecosystem, and more. Also, they are indicating the areas where some companies should improve. You can find advanced reports that include factors like sustainability, ethics, impact on the environment, and more. In this article, we are going to analyze more about the importance of ESG criteria for investors.

What ESG Stands For?

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As we already mentioned, the key part of this criteria are related to awareness of corporations towards improvements related to ecology, more satisfied workers, and compliance with legal terms and regulations. When it comes to the impact on the environment, the criteria are showing how some company is using the resources, what are the levels of emission of toxic waste, carbon footprint, and could their actions create some long-term consequences for nature.

The social aspect is looking at the relations between executives and labor. It became a very important indicator that can affect the overall status of some companies. Workers should be well-secured. Also, it is expressing the impact of some brands on the community. For example, Apple has a strong influence, and it stands for technological upgrades and focusing on convenience and better user experience. It is focusing on the average wage of workers, the ability for them to improve their position in the company over time, and overall care of the labor.

The third part is related to compliance with regulations and the ability to follow the standards and practices without any financial or legal issues. Each corporation that is following the most recent trends with integrated ESG must have transparent reports and analyses where people can learn more about their financial actions and ongoing projects.

Why is it important?

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This model of investing is still in its beginning stadiums, and a lot of people are confused when it comes to determination and ranking of projects. However, the main reason why so many investors are interested in it is because it offers sustainability and greater effectiveness. It is now more important to invest in something that will bring positive changes in the world instead only looking for a higher profit.

More than 70% of people would rather choose a project that won’t cause any issues with the factors that ESG stands for, even if that means that they will have slightly lower profit. The global plan is to achieve complete sustainability in the next 30 years. According to the reports of the EU and their plan to cut the emission to zero, the plan is to reach that until 2050.

They are using different strategy to motivate business to comply to these new standards, such as higher tax rates for those who cause more Co2 emission, or offer poor conditions for workers in various areas. Looking from an aspect of investors, the main reason to consider only those companies that comply to these regulations is a better chance for them to grow overtime, while those who are avoiding to improve some aspects might face financial and legal issues.

Advantages of ESG

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While there are many advantages for corporations to start implementing these modern processes, there are benefits for investors as well. When a brand is making strong campaign towards ecology and advanced processes that won’t have any negative effects on nature, that will improve the status of that brand, making it more competitive on the market. That brings higher revenue, market share, stronger position, and more. Therefore, investing in such business can only result in higher profit over time.

Moreover, when a company is taking good care of its workers, chances are better that experienced experts will also be interested in working in such a company. That can result in more effective projects and innovations. Also, when you are sure that some brand is not trying to avoid some legal terms and laws, such as paying taxes or hiding some reports, risks of failure with that kind of investment are lower as well.

Conclusion

Even though this is still a relatively new concept, we can notice that it didn’t need a lot of time until many companies and investors started looking forward to its full implementation in different processes. The main benefit for investors is related to current trends, where being socially responsible represents an important factor for any brand. That brings improved chances of further development.

However, you have to distinguish this model of investing from ethical investing. The best example is related to the tobacco industry. Some company that is producing tobacco products might follow all of the processes to be seen as perfect in terms of ESG, while ethical investors will still avoid them due to the impact that tobacco products have on overall health.

Moreover, regulations and laws in most countries are also promoting these advanced factors for companies, which will result in the complete integration of this criteria over time. The great opportunity for this market is that the number of companies that are integrating ESG is growing rapidly, and there are already around 250 funds.

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