Developing the “S” and the “G” in ESG investing

Over the past decade, ESG (environmental, social and governance) investing has grownoften with an extended focus on the environmental component. Investors rising expectations that companies respect ESG criteria, as well as the new disclosure requirements, encourage business leaders to make decisions and consider both people and planet in their overall strategy. And during this process, there is growing agreement on the need to develop the social and governance components of ESG investing, according to Lebec Consulting CEO Alix Lebec.

Social and governance issues still largely overlooked in ESG investing

“Investment decisions should be driven by proactive value creation, innovation and intentionality to support both people and the planet. These principles, together with sustainable profitability, are what we call the impact investing, Lebec wrote in an email exchange with TriplePundit.

Social and governance issues play a vital role in helping investors and business leaders generate long-term profits and manage risk, but these areas are not receiving substantial investment. have a higher influx than funds that focus more on issues such as community development, gender equality, and racial and ethnic diversity.

When identifying metrics and measuring impact, environmental funds and products are easily more quantifiable than financial products related to governance and society. Measuring the principles of labor relations, diversity and inclusion, and corporate culture is complex because of their definitions and criteria. However, ESG issues are linked. For example, events induced by climate change disproportionately affect poor and exacerbate existing inequalities in education, gender and health. And as ESG is linked to higher return on investment and reduced risk, all three components create equal value that investors should not ignore.

ESG issues are addressed simultaneously

Regarding social and governance issues, Lebec explained to 3p the link between equity and inclusion and ESG investing in relation to the United Nations Sustainable Development Goals (SDGs).

“Although some of these factors – for example, SDG 5 [Gender Equality] and SDG 10 [Reduced Inequalities]— are abundantly clear, the reality is that equity and inclusion policies have spillover effects that affect each of these factors. And it’s all part and parcel of ESG,” Lebec wrote.

Specifically, Lebec explained that these SDG targets centered on reducing poverty or achieving gender equality cannot be achieved without achieving clean water and sanitation (SDG 6). And that’s because in emerging global markets, women and girls are often reminded of how marginalized they are, such as when they walk to fetch water in remote areas. According to Lebec, since millions of people do not have access to this necessary resource, a gender equality gap is instantly created which prevents girls from entering the education system and the labor market.

Considering this link, investors need a holistic view of how the companies they support serve society. And then conscious decisions can be made.

How to invest consciously

A growing body of evidence suggests that a majority of business leaders agree with focusing on ESG. According to a recent survey of business leaders, after increased political intervention in markets, the second most significant risk to future growth strategies is accelerating climate change coupled with growing pressure to adopt a business plan. sustainable.

Lebec shared with 3p some strategies on how brands and businesses can invest authentically to create impact. The first is to invest in solutions that both reduce the impact of climate change and provide access to essential products for new consumers and poor communities.

Second, Lebec explained that companies should familiarize themselves with the financial tools and models used by practitioners to solve current problems. This would translate into partnerships with investment managers and non-profit organizations. On top of that, companies need to redefine corporate sustainability successes through methods that merge philanthropy, impact investing, ESG and financial tools. Finally, Lebec advocated for applying and building a “portfolio approach” as this will help brands and companies diversify risk and invest heavily.

Integrating ethical and social values ​​into investment portfolios is a win-win solution for investors and all stakeholders. And maximizing positive impact and profitability will come from more clearly defining ESG investing as a decision that also values ​​diversity, equity and inclusion factors.

Image credit: Kaique Rocha via Pexels

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