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Why Are Environment, Social and Governance (ESG) Factors Important to Today’s Investment Trends?

Who knows when sustainable and ethical investment strategies became a factor to be considered by asset managers, investors and shareholders? There’s a shift in worldwide investment focus of investment managers, investors and shareholders. What we are seeing now is a wealth transfer to increasing risks and costs, environmental disasters, millennials as well as enhanced performance of processes using practices that are sustainable.

Senior executives agree that environmental, social and governance (ESG) factors are valuable to making decisions on investments. The only issue is that only 60% of firms have a management strategy with 25% having a business case that is clear for upholding.

ESG includes a broad range of results on the return and risk values of any investment. The issues can hover around reputational or strategic risks, direct impacts on finances, business ethics, and regulation changes. Such environmental risks consists of clean technology, pollution, climate change, waste and natural resources. On the social factor the risks included are human resources, human rights, local community, and health and safety. The governance factors has risks such as board and shareholder levels, employee conflict of interest, reporting, regulation, and compliance.

The shift from important business approaches to considering the medium and long-term results of the business decisions in EST will have an impact on the market. Multinationals, listed businesses, large corporates, healthcare, agribusinesses, supply chain, manufacturers, suppliers, and small to medium businesses are the markets that will be affected. Investments and capital flow drive our economy, the intricate ecosystems of global economy are aware of the need to maintain ESG strategies in places where funds are being invested.

Some countries are yet to agree to the appreciating the ESG business policy as they deem it not cost effective. Those countries don’t think that reporting ESG for listed business is not important, further even investing in risk reduction strategies is low.
Some investments can benefit more than others on the variation of environmental results on business functions. It is challenging to enumerate environmental risks because it is not easy to monetize it but the key driving force is changing over to an economy of low carbon. It is important to invest in low carbon economies by boost effeciencies of water, waste and energy by utilizing clean technologies.

Evaluation of social risks and impacts needs intangible business traits that are not identified on record. Sustainable supply chains, community engagements, health and safety, customer relations, employee productivity and culture are some of these traits. The chance to enhance ESG performance is the bottom line for private and listed business.
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Post Author: myaebi