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ESG Investing: how does that works

ESG Investing: how does that works

With the goal of bringing greater sustainability to companies, the ESG – Enviromental, Social and Governance, is a new method of business management.

ESG stands for Enviromental, Social and Governance, we already talked about what is ESG here. But, today, we’re gonna discuss another topic. Have you ever heard of ESG investing? Known as socially responsible investing, he has directly impact on investments on the Stock Exchange.

First, let’s remember what it means ESG, quoting our arcticle:

E for Environmental

Basically, everything that envolves “how the company is concerned, for example, with reducing water or air pollution (if this applies to its activities), or with how the use of resources can be optimized in the manufacture of its products and/or or provision of services”.

S for Social

How much social responsible your company has? “Organizations that have strong social appeal, are concerned with data protection, diversity in the team and with employees, for example”.

Also, this is about your relationship with suppliers, business partners and stakeholders.

G of Governance

“The governance area is related to the attention that the company gives to the management of its business and its relationship with the interested parties”.

And it is important for a company that has specific committees and councils, all to improve corporate Governance.

ESG investing: how does that works?

Launched in April 2006, the Principles for Responsible Investment (PRI) are in essence a set of global best-practices for responsible investment. They also have a partnership with UNEP Finance Initiative and the UN Global.

Those principles “were developed by an international group of institutional investors reflecting the increasing relevance of environmental, social and corporate governance issues to investment practices”.

SOURCE: unpri.org

All investors can incorporate ESG into their decisions to make a sustainable global financial system.

Impacts all over the world

The most impactful moment was when Larry Fink, CEO of BlackRock – one of the biggest financial institutions in the world -, responsible for many investment capital, released a letter to the financial market. It said that he would use ESG as an investment criterion as his priority.

We can also mention other indices such as the Nasdaq ESG Index, which is part of the US stock exchange, and the Nikkei ESG-REIT Index in Japan, which are ESG listed companies in the country.

ESG benefits for business

Isn’t clear enough how important ESG is for benefits to both businesses and investors?

Investors are eyeing companies ESG. So, if your company is concerned about the environment, social and governance, you are on the right track. In that way, companies ESG have a certain competitive Advantage. An ESG company has a low risk profile for those interested in investing.

Sustainability can improve a business’s results, and now we’re talking about going paperless, recycling, or making energy-efficient upgrades. In the way, companies that take ESG seriously, improves financial performance.

Another important point is that when your company is ESG, it manages to reach a certain audience of potential customers who take companies that follow their values ​​very seriously.

Ratings ESG – how does works?

MSCI is one of the most known companies in ratings. She establishes rigorous ratings about companies that are part of the ESG.

“We use a rules-based methodology to identify industry leaders and laggards according to their exposure to ESG risks and how well they manage those risks relative to peers. We also rate equity and fixed income securities, loans, mutual funds, ETFs and countries”.

SOURCE: msci.com

 

 

In that way, companies that are in CCC and B, are the ones with the lowest rating, while AA and AAA are the ones with the highest rating. Finally, BB, BBB and A, are at a median level of rating.

This rating is super important for ESG investing.

ESG as an indicator of strong leadership

So, ESG investing is an indicator of Strong leadership in a company.

Do you like our article? Have any questions? See you in the next blog!

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QMS Certification

QMS is an accredited third party certification body, it is currently present in 33 countries and focuses on the certification of management systems. QMS America is managed by the US office and has consistently grown in market recognition by technical level, customer satisfaction and competitive pricing.

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