HeyAnna administrators What is ESG Investing?
In our poll: Over 200 of you voiced that dividend payouts and diversification are two considerations that are important to you when it comes to investing.
But did you know? Our CIO 3Q20 report shares that terms like ‘sustainable investing’ and ‘ESG integration’ have evolved to now be a part of many investors’ considerations, and that this ESG overlay has positively impacted long-term performance and risk-adjusted returns.
For many of you, it appears that a company’s ESG principles is not a priority to your investment-making decision today. Why? #WhatWouldYouDo #WWYD
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In our personal opinion, as more companies increase their efforts toward ESG, an increased awareness from investors when investing also helps accelerate the adoption by other firms.
Even though one may argue that this is a gimmick, I believe that as we all do our part - it will steer the economy towards a more sustainable one, while trying to make profit. Just to share, a recent BT article shares data for ESG performance - interestingly, the Covid-19 crisis appears to have confirmed the expectation that companies and funds that rate highly in ESG outperform.
However, like what you mentioned, overall information from reputable news sources and word of mouth is influential. In fact, companies who don't do well on social or environment fronts can experience more publicity/reputational risk that in turn affect stock prices. That said, there are many opposing forces that also come into play. It really boils down to a company's ability to ride out a variety of risk factors, and ESG can be an indicator of these factors. You may want to check out this interesting article that talks more about this point here.
Coming back to the point about whether there's a demand for ESG - we've actually seen more demand from investors who take an advocacy stance towards investing responsibly and sustainably. This initial growth of funding into ESG products has allowed wealth management services to provide products and avenues for customers to invest in ESG = translated into more companies adopting ESG standards. Some people may be concerned of a bubble forming in this space due to an influx of money (similar to the concerns around an ETF bubble), or cases of inaccurate/false reporting of ESG measures by companies etc.
At the end of the day, always make sure to do your research, stay diversified, and don't put all your eggs into one basket!