Environmental, social, and governance investing (ESG Investing) has gained traction in the recent past. This article explores why investors prefer investing in companies with high ESG factors and ESG investing benefits.
What Is ESG Investing?
ESG is committing your money to companies whose business practices align with your values. To clearly understand how Declan Kelly ESG investing works, here is a rundown of the factors it measures:
Environmental Factors
Environmental factors consider the environmental impacts of a business’s activities, both locally and globally. For example, whether the business products are sustainable, if utilization of the natural resources is sustainable, and mitigation of greenhouse gas emissions.
Social Factors
Social factors focus on the business’s impact on the people and the community in the company and outside the company. Does the company uphold human rights when doing business? Does the company offer equal employment opportunities during the recruitment and promotion process? Does the company take part in community development activities in the community?
Governance Factors
Governance factors are the decisions made by the top leadership of the company and the board of directors. It considers factors such as whether the executive remuneration is reasonable, whether the administration addresses shareholders and stakeholders’ concerns, and whether diversity exists in the company’s top leadership representation.
How ESG Practices Benefit Companies and Investors
A strong ESG program can enhance a company’s brand, enable long-term growth and give the business access to larger capital pools. Here are more benefits of ESG investing.
Improved Growth
A good ESG program helps companies venture into new markets and also expand the existing ones. Companies that rank high in ESG factors are more likely to get licenses and approvals for new businesses from the governing authorities.
Reduced Costs
ESG dramatically reduces operating expenses such as the cost of raw material and water or carbon. Prudent utilization of the available resources by observing ESG practices significantly impacts the business performance, leading to increased profits.
Boosts Employees Productivity
A robust ESG proposition helps a business attract top talent and retain quality employees by creating a sense of purpose and enhancing motivation. This results in increased productivity. When employees are satisfied at the workplace, they perform better, which ultimately boosts a company’s share value.
It Keeps Activists at Bay
Activists have exploited governance loopholes as tools in their protests against companies for a long time. More and more, management teams that lack a proactive stance on social and environmental have become targets. Companies that address ESG issues do not need activist’s intervention to do what is necessary.
ESG will continue gaining traction as more businesses incorporate ESG matters in their strategy and realize positive results. Besides Increased market trust, it will also improve the shareholder’s value in the industry. Declan Kelly CEO believes companies must adopt the ESG criteria for the overall growth of their business.
