Companies with poor ethical practices tend to make bad decisions, leading to bad investments over time. Undressed environmental risk factors can also compromise long-term returns for investors. As policy change around the world demands a higher ethical standard, unethical companies will likely underperform and be left behind.
In 2020, the International Energy Agency (IEA) reported that over 90% of all new electricity-generating infrastructure was renewable. New opportunities for investors can be found on an increasing basis and have the potential for high returns. Many new-economy and disruptor companies tend to have ESG practices in place from the beginning.
Environmental filters are employed to target investments in companies with a positive carbon footprint and avoid companies that have latent environment-related risks. Here, ESG can help reduce financial risk and ensure your money isn’t contributing to the global climate crisis.
Social screens add a moral and ethical filter to your portfolio by only investing in companies that treat people right, inside and outside the organization. Employee safety, diversity of the workforce, and the degree to which a company gives back to the community are all considerations.
Corporate governance tells you a lot about the values that a company holds. Governance screening keeps your money away from companies where there aren’t appropriate internal checks and balances, or where accounting tricks are used to artificially inflate earnings; and helps avoid companies that engage in illegal activity, bribery, or political lobbying.
The urgent need to combat climate change is more than apparent to scientists around the world. This need has driven a tremendous increase in the number of companies and projects focused on renewable energy, non-fossil-fuel-based transportation, and green infrastructure initiatives. The opportunity is now. Bloomberg New Energy Finance (BNF) recently reported on lithium-ion battery packs sales below the transformational $100 mark! $100 per kWh is where most believe electric vehicles become competitive with internal combustion engines. Another area of opportunity is Solar and Wind, which are still less than 3% and 6% of global electricity generation, respectively.
It’s not only the environment that needs our help. Impact Investing aims to benefit society as a whole by pursuing investments in companies whose objectives are to generate measurable impacts to social causes, sometimes including environmental issues. Investing in an impact fund can result in a better quality of life for people around the world, following the UN’s 17 sustainable development goals are a worldwide initiative to create a more inclusive, healthy, and environmentally sound future by taking action against poverty, hunger, inequality, lack of education, and the destruction of our natural home.
When comparing companies with at least 30% women in their senior leadership positions to those without, the companies with better gender diversity did better. On average, MSCI reports they have seen 36% higher return on equity from gender-diversified companies!
