The psychology driving ESG investments

Why more and more people are opting for sustainable investment choices

In recent years, corporate social responsibility has become a major focus. Companies are increasingly recognizing that their objectives extend beyond just profits to encompass people and planet. This shift is also evident in the stock market, where investors are increasingly considering more than just financial returns. They’re delving specifically into ESG investments, which assess the impact of investments on social and environmental aspects. 

Today, both consumers and investors are increasingly aware of the impact of their choices, propelling the significance of ESG. Investors are no longer solely interested in financial gains; they also seek to make a positive impact on the world. Demonstrating adherence to various ESG criteria makes companies more appealing to consumers and investors alike.

Breaking down ESG

Environmental or climate is all about your company's carbon footprint. Renewable energy such as solar panels, investments in response to climate change, water management or simply sorting your waste. Companies that take proactive measures to reduce their environmental impact tend to receive high scores in this category.

The “S” in ESG pertains to the social pillar. How do you deal with your stakeholders as a company? Think about working conditions, human rights, community relations and production responsibility. Companies that prioritize employee well-being and positively contribute to their operating communities tend to perform well in this area. 

Governance focuses on the internal management of your company. How is your corporate structure organized? Are there bonuses for senior management? And what are the rights of shareholders? Transparency and fairness are the key words in this area.

Importance of ESG for portfolios

"On one hand, ESG provides a better view of how companies operate," explains Kenneth van Daele, CEO at Move To Happiness. "Their ESG score reflects their environmental impact, social responsibilities, and governance practices. Issues that are increasingly prioritized by younger generations and now impacting the stock market. High ESG scores indicate resilience to long-term risks."

On the other hand, ESG criteria unveil opportunities. Companies that bet on sustainability or the S pillar within ESG are often emerging as market leaders as consumer and stakeholder preferences shift. Additionally, ESG aids portfolio diversification, redirecting attention from solely financial gains to companies with sustainable practices, thereby broadening investment horizons and fostering long-term stability.

It's not all sunshine and rainbows 

Most large investment companies and banks, meanwhile, also have sustainability at the top of their list of priorities. This is only expected to increase. Investing in ESG today can provide a competitive edge and potentially yield significant future benefits.

Nevertheless, there are valid criticisms of pure ESG investments. Consider the term "greenwashing," where companies falsely portray their products or services as environmentally friendly. Additionally, the absence of standardized ESG measurement and rating systems complicates comparisons between companies, making it challenging for investors to assess their ESG criteria accurately.

In short, while ESG investing holds promise for effecting positive change, investors must consider the broader landscape before making decisions.

Are you seeking more information on how to implement ESG, particularly focusing on the social pillar, in your company? Feel free to schedule a call.