A new buzzword term has surfaced in the investment universe and gained in popularity.
Environment, sustainability and governance investing criteria (ESG Investing) have become more important as millennial aged investors become a growing portion of investors.
ESG investing practices and pledges by corporations are sprouting like mushrooms in horse manure.
The idea behind ESG Investing, also known as socially responsible investing, is to ensure corporations are complying with today’s social goals.
Does the company care about protecting the environment? Does it comply with regulations to the letter of the law or to the spirit of the law? What kind of environmental plan does it have? And is it following the plan?
Factors under sustainability range from supporting the community with donations to encouraging volunteer hours by employees to employee training and education to health and safety considerations.
Governance refers to how the company is run. Issues range from the gender and ethnic diversity of the board of directors and employee contingent to disclosure of conflicts of interest to whistle blower policy, harassment complaint policy, and response to consumer complaints.
The rise of the Me Too movement and Black Lives Matter movement has cast the spotlight on governance.
The idea of ESG Investing contains more than just complying with the current tide of social and political thought.
Successive studies have determined that corporations using ESG principles in their business model reduce risks for investors.
They are better prepared for environmental disasters. They are viewed more positively by the community and customers.
And the employees and customers are more comfortable dealing with them.
Improved productivity and profits are often the outcome of ESG Investing plans.
Some observers believe ESG Investing plans by corporations are cosmetic window dressing designed to make the operations look as if they are model citizens
Skeptics might consider TC Corporation’s promise to produce net zero greenhouse gas emissions if the Keystone pipeline were allowed fall into this category.
Time will tell investors if the corporate ESG plans are real or cosmetic. But ESG Investing is here to stay. Investors, particularly the younger and newer ones, want their investments to be compatible with their own values.
The global trend by large investment funds and banks to no longer invest in or lend money to the fossil fuel industry is another manifestation of ESG principles. This policy reduces risk of loss in a declining industry and risk of loss to an environmental disaster like the BP oil spills in the Gulf of Mexico.
The ESG investing trend has given rise to special funds such as renewable clean energy with more than a dozen from which to choose. Similarly green bond funds have been developed to finance green energy projects.
These plans have moved some control of the economy from the entrenched establishment to average investors.
The time will come when municipalities like the cities and towns will need to file ESG plans for taxpayer perusal.
Ron Walter can be reached at ronjoy@sasktel.net
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
