What is ESG Investing, Current investment levels, & ESG Funding post Coronavirus
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Today, let's have a look at what ESG Investing is, how important it is, and what changes will the pandemic have on ESG!
What is ESG Investing?
Environmental, Social, and Corporate Governance (ESG) refer to the three central factors in measuring the sustainability and societal impact of an investment in a company or business.
ESG (Environmental, Social and Governance) investing refers to a class of investing that is also known as “sustainable investing.” This is an umbrella term for investments that seek positive returns and long-term impact on society, environment and the performance of the business.
ESG Examples:
Environmental: These are the investments which take into account the environmental factor such as the impact of a project on the quality of air, water, land, ecosystem, and human health. The investments made under this category plays a vital role to analyse with due diligence that the investments hold a positive result in the quality of any of the environmental factor.
Society: As the name clearly indicates, these are the investments that take into consideration the impact on society, for example: Does building this new power plant requires shelter homes to be relocated and stuff like that.
Governance: Governance risks concern the way companies are run. It addresses areas such as corporate brand independence and diversity, corporate risk management and excessive executive compensation, through company governance activities.
Myth Buster: ESG consideration adversely affect financial performance!
Investment under the ESG umbrella
The United Nations Sustainable Stock Exchanges (SSE) initiative, which has now grown to include most of the stock exchanges in the world, provides an indicator of the growing attention that exchanges are giving to sustainability in their markets.
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| US SSE Report |
After the US Global Index, let's have a look at how India performs on the ESG Investing side.
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| MSCI India Reports |
If you would have invested Rs.10k, 5 years before, in the MSCI India ESG Leaders, your investment would be valued at Rs.13.6k(Dated: 31st July 2020), an effective annual rate of 6.38%, which is more than 2x of what you get in a bank savings account.
ESG Investing in a Post-Coronavirus world
The coronavirus pandemic has caused investors worldwide to contemplate the potential for a much different investment landscape when the outbreak is finally behind us.
Key Takeaways from multiple interviews of Industry experts:
- COVID-19 has made the value of ESG integration more tangible
- Requires Due diligence & a cohesive vision on how to create human and economic value
- The post-COVID-19 world is tasked with a focus on environmental protection and social inclusion whilst adopting sustainable financial outcomes.
- Because the duration and degree of contagion of the coronavirus are ultimately the fuel driving the macroeconomic uncertainty the world faces, the ESG lens hasn’t been a consistent differentiator among markets at the onset of the pandemic.
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