ESG investing has become a talking point for the investing community. It stands for environmental, social, and governance. It refers to how a company scores on the metrics and standards for other potential investors.
What Is ESG Investing?
The environmental criteria is how a company safeguards the environment. Social means how a company deals with relationships with employees, suppliers, communities and customers. Governance looks at a company’s leadership, executive pay, audits, internal operations and shareholder rights.
How Does ESG Investing Work
ESG investing is a more sustainable form of investing. Investors will use this scoring system to review a company before investing. They want to prioritise investing in stocks which not only care about the environment but also look after their community and customers. They also want to ensure they are looked after by a reliable team, ensuring a company is managed efficiently.
Understanding ESG Metrics
Many investment companies help decide the ESG scores of many companies. For example, Trillium Asset Management has a variety of factors which help identify a company’s position to ensure they are a strong company for long-term performance. Analysts will consider the current climate in specific sectors/ industries to ensure the stability of that company.
The criteria at TAM avoid investing with companies who have had issues with human rights, and environmental concerns, have received negative news about animal welfare, governance issues and problems regarding the safety of their products.
How Does ESG Investing Vary From Sustainable Investing?
If you are an experienced investor, you have likely heard of sustainable investing and they are both very similar. ESG mainly screens companies based on their environmental impact and how socially acceptable they are. Additionally, ESG homes in on how a company makes business decisions which is important to know before you invest.
What Does ESG Mean For Businesses
Businesses should consider an ESG approach for their company’s operations. It isn’t a bad thing either. This improves their moral standards when it comes to business decisions. For example, if a company needs to be more sustainable and eco-friendly. It is a positive because this is how the world is moving forward.
Where To Find ESG Investment Scores?
There are numerous websites which provide ESG scores of many companies around the world. The MSCI is one of those that provides ESG scores on over 8,500 companies. There are also many other companies which also offer ESG investment scores about businesses.
Summary
Looking at ESG investment scores is a great way to improve your portfolio. It allows you as an investor to invest in stocks that are more stable and are managed correctly. Nevertheless, some companies are still very successful but have poor ESG reports. Amazon is one of those companies that don’t have a good ESG score. Yet they are still a very successful company, with the stock value increasing by 100% over the last five years.
Investing in these companies can help you steer clear of trading scams. Investment scams are increasing with AI leading to more investors seeking help. However, these investors are not experienced with investing and usually fall for these scams. These investors need to speak to someone who specialises in fraud recovery to retrieve their losses.
