What is meant by ESG investing?
This type of ethical investing strategy helps people align investment choices with personal values. ESG stands for environment, social and governance. ESG investors aim to buy the shares of companies that have demonstrated a willingness to improve their performance in these three areas.
ESG investing focuses on companies that follow positive environmental, social, and governance principles. Investors are increasingly eager to align their portfolios with ESG-related companies and fund providers, making it an area of growth with positive effects on society and the environment.
Examples include Dow Jones Sustainability Index, Bloomberg ESG Data Services, Thomson Reuters ESG Research Data, and others. The ESG scores measure companies' efforts in reducing carbon footprints, greener technology usage, community development projects, tax abiding, and avoiding legal issues.
ESG stands for environmental, social and governance. These are called pillars in ESG frameworks and represent the 3 main topic areas that companies are expected to report in. The goal of ESG is to capture all the non-financial risks and opportunities inherent to a company's day to day activities.
One of the biggest criticisms of ESG is that it perpetuates what it was partly designed to stop – greenwashing.
The term ESG first came to prominence in a 2004 report titled "Who Cares Wins", which was a joint initiative of financial institutions at the invitation of the United Nations (UN).
The first group to coin the phrase ESG was the United Nations Environment Programme Initiative in the Freshfields Report in October 2005.
Apple, one of the leading tech companies in the world, has consistently received high ESG scores, making it a prime example of how a company's commitment to these values can have a significant impact.
“BlackRock has been the biggest contributor of inflows into ESG funds over the past five years, including the past couple of years,” said Hortense Bioy, Morningstar's global director of sustainability research.
- Environmental – this has to do with an organisation's impact on the planet.
- Social – this has to do with the impact an organisation has on people, including staff and customers and the community.
- Governance – this has to do with how an organisation is governed. Is it governed transparently?
Is ESG good or bad?
Companies with a low ESG score are thought to have the worst environmental, social, and governance impacts. Undesirable ESG scores have also been linked to rising poverty levels in the communities where the firm operates, as well as poor employee mental health.
Environmental, social and governance (ESG) is a framework used to assess an organization's business practices and performance on various sustainability and ethical issues. It also provides a way to measure business risks and opportunities in those areas.
The importance of ESG for businesses and investors. ESG functions as a valuation technique that takes into account environmental, social and governance issues. ESG in the private sector is a set of criteria used to evaluate a company's risks and practices.
Republican politicians have criticized ESG because they say they consider it an effort to use financial tools for the purpose of advancing liberal political goals.
Over the past decade or so, ESG edicts became embedded into corporate America's ecosystem as big shareholders —BlackRock, but also places like Vanguard and Fidelity — and the shareholder advisory firms like ISS and Glass Lewis increasingly voted in favor of these mandates that pushed companies to reduce their carbon ...
In December 2022, Florida announced that it was taking $2 billion out of the management of BlackRock, the world's largest asset manager (and biggest lightning rod for ESG criticism). This was the largest such divestment thus far. These attacks have been coordinated.
Increasingly, the ESG movement has been labelled as "woke" capitalism, and accused of enabling greenwashing. As a result, Taylor says that even as businesses continue to issue net zero pledges, they've stopped labelling their business decisions as "ESG".
ESG is a new take on business and investment strategies. In general, it aligns them with goals that the mainstream 21st Century stakeholder would consider top priorities. As a result, it's a hot and often controversial topic for boards, shareholders, and politicians who represent their interests.
Strive Asset Management and Inspire Investing offer the largest anti-ESG funds: Strive U.S. Energy ETF (DRLL): $369.2 million. Inspire 100 ETF (BIBL): $294.5 million. Strive 500 ETF (STRV): $266 million.
A 2004 report from the United Nations – titled Who Cares Wins – carried what is widely considered the first mainstream mention of ESG in the modern context. This report leaned in heavily, encouraging all business stakeholders to embrace ESG long-term.
When did ESG investing become popular?
In the '60s, ESG became much more mainstream, around the same time as the evolution of the mutual fund industry, the civil rights movement, and the protesting and boycotting of companies involved in or in support of the Vietnam War.
| Company | ESG Risk Rating | Industry Rank |
|---|---|---|
| Stellantis NV | 23.4 Medium | 34 out of 90 |
| Bayerische Motoren Werke AG | 24.8 Medium | 45 out of 90 |
| Tesla, Inc. | 25.3 Medium | 49 out of 90 |
| Toyota Motor Corp. | 29.3 Medium | 77 out of 90 |
According to the 2021 Corporate Knights Global 100 Most Sustainable Corporations, Amazon ranked 92nd, with a weighted ESG score of 51.4%. While Amazon's ESG score is lower than some of its competitors, such as Microsoft and Alphabet, the company has made significant progress in recent years.
To us, ESG is simply about identifying material risk factors that matter to company profitability and shareholder value over time. Conservatives have been quick to complain that ESG has been stretched beyond this narrow purpose and is being used to promote a progressive political agenda.
Starbucks' Strong ESG Score: Starbucks has been a frontrunner in integrating ESG considerations into its business operations. It demonstrates a robust commitment to environmental sustainability, ethical sourcing, and responsible business practices.
