What is sustainable investing?
Sustainable investing is about investing in the long-term progress of our planet. It is about finding value in businesses while incorporating environmental, social and governance (ESG) perspectives in investment analysis to maximize returns.
Companies which can identify present risks, build more resilient business models and address our planet’s challenges will come to outperform in future.
Some ESG factors are tangible, while others are not. When analyzing sustainable investments, it is important to understand how companies meet these criterias.
To learn more about each criterion, click the pictures for a brief explanation of it.
This criteria assesses how a company performs as a steward of nature.
The net greenhouse gas emissions of a company can be an indication of its environmental footprint.
Companies in different sectors will have varying levels of greenhouse gas emissions.
It is important to consider the amount of Greenhouse Gases emitted throughout the entire production process, including that of downstream suppliers.
Carbon Footprint and GHGs
How is the company managing the wastes in its production process?
Does it produce hazardous wastes? If so, how is it disposing of it?
Firms which are energy efficient will have reduced energy costs.
However, achieving energy efficiency would require the implementation of new technology, which oftentimes require high capital costs.
Refers to a firm’s active participation alongside other stakeholders to conserve and protect the local environments in which it operates.
When assessing a company in this criteria, one might also look at the environmental risks that the company is facing and how it is mitigating these risks. For example, some firms are shortening their supply chains to improve resilience against supply shocks caused by climate change. Others are hiring “environment consultants” to ensure that their business operations are in compliance with increasingly strict government regulations so as to avoid litigation risk. As our planet’s climate crisis worsens, companies are adapting their business models.
How companies manage their relationships with employees, suppliers, consumers and the wider community.
Beyond workplace gender equality and employee inclusion, one should look at whether the company is enhancing gender and diversity within the local communities in which it operates.
What is the proportion of females on board the company or in senior roles?
Are the firm’s products and services equally accessible to both men and women? Do the firms’ advertising/social media campaigns promote a healthy body image and empower females?
Data protection and Privacy
Gender and diversity
Does the company have the best interests of its employees and customers’ privacy at heart?
Can it guarantee the protection of customer data? Oftentimes, good data protection policies can save companies from incurring additional legal costs.
What labour standards does the firm uphold?
Does its employees have basic working rights, good working conditions, timely wages and job security?
How can companies become
more socially sustainable?
Employing workers from local communities to create stable job opportunities
Diffusing innovation and technology into the local community and economy
Getting involved in philanthropy and have “social impact funds” to further causes which they believe in, ranging from education to conservation
When assessing a company in this criteria, one should look at the company’s active engagement with the communities in which it operates and determine the level of social impact that the company has created.
For example, does the company employ workers from local communities to create stable job opportunities for the people? Is there a diffusion of innovation and technology into the local community?
Social impact can be gauged by the growth that the company has created in the local economy, improving the standards of living of the people. Sometimes, companies are involved in philanthropy and have “social impact funds” to further causes which they believe in, ranging from education to conservation.
This criteria assesses the standards upheld by the company’s management. It concerns internal processes, such as leadership, transparency and shareholder rights..
Executives should be paid fairly and their compensation made transparent.
Companies should use accurate and transparent accounting methods.
Companies should also be transparent in reporting ESG factors such as GHG emissions.
This makes it easier for investors to assess the company’s commitment to sustainability.
Ensure that the board is wholly independent and acting in the best interests of the company without any conflict of interests.
Shareholders are given an opportunity to vote on important issues.
How can a company be more sustainable in this aspect?
Having checks and balances within the firm
Building a good company culture and positive reputation
Maintaining the company’s legal and ethical standing in the eyes of markets, regulators and shareholders.
Ensuring racial, gender, religious, sexual identity etc. diversity among board members and employees