Questions about esg investing?
Are my investments consistent with my ethical, political or religious beliefs? Can I screen out certain industries such as tobacco or fossil fuels? Can I have a positive impact on society through my investments? Does my portfolio include companies that provide solutions to environmental and social challenges?
- Should you include ESG risks in your company's principal risks? ...
- How do your ESG commitments influence your financials? ...
- Could your organisation be at risk of being accused of green/social washing? ...
- What impact could an energy crisis have on your organisation?
Are my investments consistent with my ethical, political or religious beliefs? Can I screen out certain industries such as tobacco or fossil fuels? Can I have a positive impact on society through my investments? Does my portfolio include companies that provide solutions to environmental and social challenges?
However, there are also some cons to ESG investing. First, ESG funds may carry higher-than-average expense ratios. This is because ESG investing requires more research and due diligence, which can be costly. Second, ESG investing can be subjective.
- Environmental. Conservation of the natural world. - Climate change and carbon emissions. - Air and water pollution. ...
- Social. Consideration of people & relationships. - Customer satisfaction. - Data protection and privacy. ...
- Governance. Standards for running a company. - Board composition. - Audit committee structure.
Assess employee perception of your efforts to build a more responsible organization, understand employees' current involvement in ESG activities at work, and identify barriers to participation.
In this context, the Big 4 accounting firms - Deloitte, PwC, Ernst & Young (EY), and KPMG - play a pivotal role in shaping corporate strategies, reporting practices, and, ultimately, the sustainability divide.
- Am I comfortable with the level of risk? Can I afford to lose my money? ...
- Do I understand the investment and could I get my money out easily? ...
- Are my investments regulated? ...
- Am I protected if the investment provider or my adviser goes out of business? ...
- Should I get financial advice?
SUSTAINABLE investing that considers environmental, social and governance (ESG) factors has been gaining traction for years now. Its focus is on companies that aim to improve wellbeing and have a positive impact on society and the physical environment.
Analyst surveys, for example, indicate that CSR performance is becoming a more important factor in investment decisions. According to CFA Institute (2017), 78% of analysts take environmental, social, and governance performance into consideration for their investment decisions.
Why are people against ESG investing?
Critics say ESG investments allocate money based on political agendas, such as a drive against climate change, rather than on earning the best returns for savers. They say ESG is just the latest example of the world trying to get “woke.”
| Pros | Cons |
|---|---|
| Can help investors diversify their portfolio | ESG funds may carry higher than average expense ratios |
| May reduce portfolio risk | ESG investing is still a fairly new concept and there isn't a ton of reporting on performance |
Investors are increasingly interested in ESG criteria for evaluating business because higher ESG performance correlates with higher returns, lower risk, and long-term business sustainability.
Musk himself became a vocal critic of ESG ever since Tesla was first booted from the S&P 500's sustainability index a year ago. After Fortune reported some two weeks later about allegations over fraudulent ESG investing by Deutsche Bank, Musk claimed all ESG lists were suddenly fraudulent.
Investors recognize that ESG can be an important factor in choosing whether to invest in specific companies. It may be time for executives to step up and fully integrate ESG into their equity story, making sure to connect ESG to value creation, and differentiate themselves from their peers based on ESG value impact.
- Collect Key Performance Indicators and Documents. ...
- Interview Company Stakeholders. ...
- Perform Background Checks on Decision-Makers. ...
- Review All Accounts. ...
- Execute Inspection Initiatives.
Based on the interviews, it appears that the costs associated with ESG analysis during due diligence typically range from US$ 5,000 to US$ 20,000, depending on the size, industry and location of the potential investment.
ESG is a framework that helps stakeholders understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria (sometimes called ESG factors). ESG takes the holistic view that sustainability extends beyond just environmental issues.
89 percent of investors consider ESG issues in some form as part of their investment approach, according to a 2022 study by asset management firm Capital Group.
| Rank | Company | Region |
|---|---|---|
| 1 | ASML Holdings N.V. | Europe |
| 2 | Check Point Software Technologies | Middle East |
| 3 | Hermes International SCA | Europe |
| 4 | Linde | Europe |
What are the key priorities of ESG?
Social – human capital (82%) and governance (70%) areas are in boards' top ESG priorities. But only half of organisations rank environmental - climate in the top three.
This sort of five percent rule is a yardstick to help investors with diversification and risk management. Using this strategy, no more than 1/20th of an investor's portfolio would be tied to any single security. This protects against material losses should that single company perform poorly or become insolvent.
Intermede Investment Partners employ a "5-10-15" rule when investing. "Five refers to a minimum 5% a year revenue growth, on average, annually. 10% is the annual EPS growth that we're looking for. And 15% is the ROE minimum threshold," explains Intermede CEO Barry Dargan.
The 4% rule is a popular retirement withdrawal strategy that suggests retirees can safely withdraw the amount equal to 4% of their savings during the year they retire and then adjust for inflation each subsequent year for 30 years.
So, what are the main drivers behind the ESG movement? While some companies are doing it to support their own sustainability goals, derive reputational benefits, or comply with regulations, the majority are being driven to do it by stakeholders as a form of risk management.
