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Learn about the benefits Of ESG investing

ESG investments are gaining significant traction all over the world today, as more and more businesses and individuals are garnering greater awareness about sustainability — the reliance between environmental, social, economic, and issues. The number of organisations supporting and promoting sustainable products has increased manifold, and others are looking for funds to do the same. ESG investing is a brilliant way to foster eco-friendly initiatives.

What is meant by ESG investing? Let us start by understanding what is ESG investing. ESG investing, otherwise called socially responsible investing, sustainable investing, or impact investing, takes into account the environmental governance factors and their end results. ESG investing is widely accepted as sustainable investing that takes into account ecological, social, and human well-being. Since the introduction of this sustainable investment style, ESG investing has grown highly popular among investors as they realise the positive effects of sustainable investing. Furthermore, the ESG investment criteria offers better opportunities in rapidly developing areas such as energy efficiency, clean energy, and new technologies. This post will cover the significant benefits of ESG investing, follow till the end to understand them better.

1. More stable investments

Keeping your risk exposure in check is of utmost importance when you invest in any type of funds or assets. If risk management is your primary concern, ESG investment is the ideal option for you. Companies that have an appreciable ESG score have shown an overall reduction in volatility. With the added risk filtration factors, the companies are inclined to experience minimum fluctuations. As per a study conducted by a group of researchers in 2016, the companies that have adopted ESG investments criteria experienced a stock return volatility that is 28.67 per cent less than the non-ESG benchmark companies.

2. Beneficial for the planet and your wallet

For a very long time, the majority of people had a misconception that sustainability investments benefit poor returns. On the contrary, numerous studies have proved that ESG investing has the potential to keep up with the traditional funds and sometimes even receive superior returns. The research conducted in 2015 concluded that 90 per cent of the companies have already embraced ESG investing and have depicted a profit that is equal to or higher financial performance. The recent reports say that, due to the Covid-19 pandemic, the funds that applied ESG standards surpassed the traditional funds between March 2020 and March 2021 and exhibited rapid growth of 27 per cent.

3. Helps you develop a responsible investment portfolio

The majority of us are looking forward to investing in companies or funds with which we genuinely believe and share similar values. By adopting the ESG investing strategy, you can directly contribute to a positive global change with your investing money. The portfolios that employ ESG strategies are growing every year; 48 per cent in 2017 and 75 per cent in 2019 and are still growing.

4. Offers competitive advantages to companies

Strong ESG practices have the potential to support emerging marketing performance effectively. According to a recent report, valid ESG practices have improved the stock performance of the companies by about 80 per cent. Furthermore, many companies have experienced 88 per cent improvement in the operational performance of their companies. In addition, 90 per cent percent of the companies have reportedly minimised the cost of capital, which influences positive, sustainable practices.

5. ESG improves company financials

ESG investing can inherently influence the overall corporate financial performance. This is mainly because implementing the ESG criteria allows you to make better investment decisions. With positive ESG filtering, a considerable decrease in overall volatility and return improvement has been observed over the past thirty years at least. Stocks that are tagged with high ESG ratings have the capacity to display a notable outperformance compared to their respective testimonial portfolios. This is true for most companies involved in the manufacture of food, energy, and beverages.

Conclusion

ESG initiatives have been around for almost four decades and have been successfully spreading awareness and bringing out new change. Companies, investors, and communities have widely accepted this criterion and adopted sustainable business practices. This practice is good for the planet and helps in earning better returns—companies involved in energy, financial services, transportation, retail, and healthcare. Financial services and manufacturing industries have increased their spending transparency.