In the past, individual investors rarely acknowledged corporate practices that affected environmental, social and governance (ESG) issues. However, this minimal level of engagement is taking a turn as ESG issues are becoming a mainstream priority in the investment community.
Now, more than ever, investments are based on ESG impact. For instance, companies such as DiversyFund are focusing on opening wealth-building opportunities for the everyday investor. Its platform helps mitigate social inequality issues prevalent throughout America.
Here, DiversyFund reviews the future of responsible investing:
What does the future hold for ESG investing?
The concept of ESG investing allows investors to measure the sustainability of a corporation by assessing business behavior and appraising future financial performance. Investors then aim to not only grow returns but positively impact the sustainability and longevity of society and the planet.
A recent poll from Morgan Stanley demonstrates the significant and increasing support behind ESG. Out of 1,000 individual investors, 71 percent believe companies will receive higher returns after channeling their focus towards environmental and social purposes. Furthermore, 75 percent expressed interest in integrating sustainable investing into their business’ strategy.
Because successfully implementing ESG investment strategies takes time, leaders are starting to take a systematic and targeted approach by involving board directors in managing and evaluating ESG decisions and making ESG strategies priority.
Harvard Business Review conducted interviews with 70 senior executives at 43 global institutional investment firms, including the three largest asset management firms in the world: BlackRock, Vanguard, and State Street. The interviewers found that ESG was universally a top priority for these business leaders. “ESG issues have become much more important for us as long-term investors,” said Cyrus Taraporevala, president and CEO of State Street Global Advisors.
What challenges do ESG investments face?
Factors such as environmental improvement, governmental legislation, consumer behavior, and other disruptive challenges impact the progression of ESG investments.
One common challenge that ESG investments run into is leaving behind old business practices. Consumers view pollution and cheap labor negatively, and individuals are more likely to make investment decisions that align with their morals. Companies are attempting to make strategy changes to produce smarter, cleaner, and healthier products and services to gain consumer favoritism and create a more stable financial future.
National legislation is another area of difficulty that organizations face when tuning their company’s focus to ESG matters. Investors and business leaders are reevaluating and analyzing aspects of governance such as corporate risk management, protecting shareholder interests, tax strategy, and corruption and bribery.
In the business world, it’s impressive to see the impact ESG investments are making on established corporations. For interested investors who are looking for a place to start, consider startup organizations that put matters of ESG at the core of their business.