Environmental, Social and Governance (ESG)
What is Environmental, Social and Governance (ESG) Investing?
ESG investing is the inclusion of environmental, social and governance issues as part of financial analysis and an important part of the investment process. It allows investors to manage material risks and drive positive impact while facilitating investment opportunities, ensuring longer-term viability for investments.
Background of ESG
In January 2004, 55 of the world's leading financial institutions endorsed the UN Global Compact report "Who Cares Wins". The report required the participating companies to conduct financial evaluations with the consideration of ESG factors as these issues impact a company's investment value.
The financial institutions believed that addressing these issues would bring benefits in the long-run. Today, emphasis on ESG is growing increasingly as more investors expect companies to commit strongly to ESG criteria.
How good ESG management impacts a company?
The way a company manages ESG issues gives insight into its quality and ability to compete successfully. Companies that perform better in addressing these issues can:
- increase shareholder value
- anticipate regulatory action
- anticipate stakeholder management
- contribute to sustainable development
Why ESG Matters to Investors?
It is possible to achieve a triple bottom line of (i) Good Investment Returns (Prosperity); (ii) Good Social Impact (People); and (iii) Positive Environmental Impact (Planet) — all with ESG Investing.
The "3Ps" of Triple Bottom Line
Prosperity
People
Planet
How can ESG Investment be beneficial?
Good Risk Management
ESG investing has gone mainstream and stakeholders have become increasingly aware that ESG decisions can enhance the value of a company in the long term. Companies that perform well on non-financial ESG factors are better positioned.
Positive Impact to The World
Environmental threats have had harsh ecological, social and economic impacts. Investing in ESG funds means supporting countries and companies that make positive changes that benefit people, the economy and the financial markets. It also means investing in a world that is free of the consequences of climate change and biodiversity loss.
Future-proofing
Sustainable investing is not just a trending fad, but a need for our funds to flow where the world's pressing issues can be addressed. Investors should be aware of threats that may affect their financial future, then align investments to where it contributes most to a sustainable future.
Rewarding Investors' Values
ESG investing allows investors to contribute meaningfully to global climate, biodiversity and sustainable development goals. Investment commitments in these spaces cater to what investors value most, be it environmental, social or corporate governance, that helps to accelerate action towards meeting our global goals.
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