Climate Change Series: Sustainable Investing with ESG

By 13 Jul 2022

In this edition of his eight-chapter series, sustainability and climate risk expert, Ganeshkumar V digs deep into the concept of emission scopes

We so far have discussed climate change issues and impacts.  We also discussed regarding carbon inventory and GHG emission calculation.  But most of the businesspeople ask: Is it all about caring for the future?  What about the present growth? Is it like, you can either make money or save the planet, not both?

Slowly, this notion of a trade-off between the planet and profits isn’t quite relevant anymore. Companies can now make more money than before by being environmentally, ethically, and socially responsible. They can reduce costs, grow their revenue, and increase the market share just by adopting smarter strategies. So yes, you can now have it both ways!

The conventional wisdom of business strategies being disconnected from environmental and social factors was thought of as the best way to make profits. But with our ever-changing world and with the new generation of investors (Gen Z) choosing to be smarter, the push for companies to embrace solutions that incorporate Environmental, Social and Governance (ESG) metrics in their activities, is now stronger than ever.

So, what is ESG?
ESG refers to the three fundamental pillars used to measure sustainability and societal impact of any business. Companies that incorporate ESG, consider some key elements within the ESG framework, instead of solely focusing on the potential profitability of the company.

The environmental pillar includes the company’s ability to manage its carbon emissions, water, waste, and more, and its actions to address the climate change issues.

The pillar of social responsibility comprises key elements such as employee management, stakeholder management, labour practices, privacy policies, human rights, etc.

The third pillar in the form of corporate governance considers the corporate practices such as minority shareholder treatment, executive compensation, independence of the board, business ethics and anti-corruption policies.

So ESG is a measure of the Sustainability of a company i.e impact the business has on the environment, the community, and the stakeholders.

Let us now try to understand what ESG Investing is all about…
Of all the necessary transformations we need to make in order to shift to a sustainable economy, the decision to start considering Sustainable Investing in your portfolios will be the most significant one.

ESG Investing or Sustainable Investing or Responsible Investing, which was once a niche in the market, is now gaining momentum. Investors from across the globe are increasingly integrating these non-financial factors into making their investment decisions to identify risks and growth opportunities.

Whenever the sustainability of a company is in question, ESG becomes an important parameter for any investor to take into consideration before investing.
ESG Investing is all about choosing wisely to back companies that aim to do good for the Planet, People and Profits.

What should you do as a company to attract investors…
Historically, there has been a common misconception that incorporating ESG factors in business operations would compromise the performance and profits of the company. However, studies have shown that robust implementation of ESG practices has reduced costs, decreased risks and volatility, and fewer instances of fraud within the company over a period. So ESG adds value to the company, has a positive impact on its performance, and does not harm the profitability by any stretch of the imagination.

Best companies do not just survive in the market, they thrive, they innovate and work on developing business solutions that can address critical ESG issues before it is too late. It is important for companies to differentiate themselves on more than just price.

Customers prefer brands that can strongly communicate a clear purpose.

Remember, if your company does not innovate, your competitors will!

Become a smart Investor!
As a responsible investor, it is important for you to think smart and choose the company you would want to invest in. You will have to identify companies that adapt and succeed to new trends. But how can you make that decision without having to go through the analysis paralysis?

Well, it is no rocket science!
To assist investors to invest responsibly, Independent Assurance Providers verify the ESG Indicators and Sustainability Reports of an organization. This provides the investors with reliable and credible data on the performance of the companies, based on sustainability parameters. Some top-performing ESG companies in India are Eicher Motors, JK Cements, Havells India, Essar Power, Godrej, Maruti Suzuki, etc.

Also, there are independent institutions that provide ESG ratings for organizations. These ratings are a comprehensive measure of the company’s undying commitment towards sustainable solutions. Companies are assessed and ranked as per the scores obtained, which becomes easier for you as an investor, to choose the company you would want to put your penny in. Some of the Top-rated ESG stocks being Microsoft, Visa, Salesforce, Nvidia, Cisco, etc.

Institutional Investors, Financial Institutions, Asset Managers, etc rely highly on these reports and ratings provided by various third parties to assess and measure a company’s ESG performance and can also be compared among peers.n

References:
https://economictimes.indiatimes.com/markets/stocks/news/top-performing-esg-companies-in-india-how-are-their-stocks-faring/articleshow/79935953.cms
https://money.usnews.com/investing/stock-market-news/slideshows/esg-stocks-with-buy-ratings?slide=10

In a nutshell , ESG Investing is now being taken to the next level with a stronger push emerging from Gen Z investors. The pandemic in particular, has also opened up newer horizons for intensified discussions on how Sustainability and Finance can co-exist and also enable mainstreaming of ESG investing.


Ganeshkumar V heads the sustainability and climate risk segment at DQS India. He is a CII sustainability assessor and sustainable procurement ambassador. He has over 16 years of experience in Corporate Social Responsibility, sustainable procurement energy and carbon footprint management among other focus areas. 

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