Global investors’ demand for ESG investments is increasing, and ESG assets may cross US$53 trillion by 2025. The need for ESG investing has explicitly grown among pre-retirees looking to align their values according to their retirement goals. ESG research and investments have become the latest investment norm offering various advantages to investors and society.
How does a sustainable investment strategy benefit society, and what is its societal impact? Here, we enlist five key impacts of ESG investing on society.
- Delivers Outperformance During Down Market Conditions
Outperformance means less loss and more gain compared to the standard index and benchmark funds. Investors that integrate ESG perform better in governance, helping the society gain from a lower loss. ESG-compliant companies have better efficiency, resulting in more cost savings, retaining talent, risk management, and lower worker turnover. All these help build a better society with more people leading better lives.
- Helps the Environment Solve Climate Change
Over the last few decades, irresponsible human behavior has contributed to massive climate change, wildlife, marine life, plant erosion, and biodiversity loss. Therefore, governments and corporations are taking the responsibility to actively participate in sustainability. ESG research and investing potentially help the environment solve climate change. For instance, green bonds focus on the environmental objectives of reducing carbon emissions and improving air quality. All these ESG efforts make the earth a better place to live and build society.
- Helps Develop Ethical Companies
Businesses, economies, and the environment are directly or indirectly intertwined with each other. The environment primarily impacts the supply chain. The global GDP broadly depends on nature, especially in the agriculture, forestry, and construction sectors. Understanding biodiversity risks and their impact on investments and the economy help investors enhance their portfolio resilience and reduce investment risk. Such companies have more robust governance practices with better ethics.
- Promotes Social Responsibility
The wealthiest institutions and society members are the most significant contributors to donations and philanthropic causes. ESG investments give more options to investors, allowing them to make a more positive societal impact. ESG-focused companies go beyond their financial benefits and give higher priority to social benefits, like protecting worker welfare and fostering business relationships. Encouraging employees to act responsibly improves productivity and job satisfaction.
Corporate Social Responsibility (CSR) helps build client loyalty, increasing their probability of investing in brands that support important social issues. Instead of directly contributing to social causes, individual consumers can give back to society through their shopping sprees.
- Helps Meet Long-Term Investment Goals
The benefits of ESG investments are more likely to deliver longer-term benefits over the horizon. Equally, unsustainable practices and ESG non-compliance negatively impact financial returns over time. Companies have a higher exposure to depreciating assets due to disruptive technology, poor environmental conditions, and changes in regulations. Considering this, businesses with ESG plans are in a better position to anticipate and adapt to ESG-compliant changes.
From experienced professionals to new individual investors, people worldwide have started recognizing the benefits of ESG research and investments. Considering the societal benefits it offers, ESG has fast become a mainstream investment strategy, helping align the financial goals and build a sustainable society for all.
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