Do you find yourself being more environmentally conscious today then you were several years ago? From switching from plastic bags to cloth bags to opting for public transport or car-pooling over private transport, people the world over are making more sustainable living choices. Why so? Because we are becoming more and more aware of the carbon footprint that are lifestyle choices leave behind on the environment.
In fact, a UN report published in March 2019 cited the poor prognosis of environmental health of planet earth and called for urgent action to arrest and reverse this1.
The need of the hour therefore is to – ‘live responsibly today to create a better tomorrow’.
But, is consideration of sustainability also important whilst investing your money? In fact, does this concept of ‘sustainable practices’ apply to corporates and businesses as well?
Most definitely yes, corporates around the globe today are waking to the realisation that adopting sustainable business practices today can seal success for their business tomorrow. Making this an important factor for you as well as an investor while seeking out investment avenues.
How does ‘sustainability’ translate for corporates?
The key philosophy for sustainability in business is to focus on ‘the manner in which profits are earned rather than just the absolute quantum of profits. The rationale being that companies earning profits whilst adopting sustainable practices are likely to be able to sustain these performance numbers over the years.
Sustainability in investing?
While this concept has existed globally for a while now, the concept of sustainability popularly termed as ‘ESG investing’ is slowly but steadily gaining popularity in India. ESG investing aims to seek out companies that also focus on sustainable business practices. It considers:
‘E’ – the Environmental impact of the business
‘S’ – its Social responsibility towards employees, customers and public in general
‘G’ – its Corporate Governance practices
Claim to fame
Can ESG investing positively impact how your portfolio performs? Yes, it could, and here’s how:
Changing risk factors today mitigated by ESG
With increasing consumer and investor awareness and increasing government and regulatory compliances, the ESG factors give rise to a wide range of risk factors today – from labour strikes, heavy penalties for environmental violations, financial scams and the like. ESG investing seeks to mitigate the impact of these risk factors on your portfolio.
Increased opportunities for environment friendly businesses
The need to ‘go green’ has given rise to several new business opportunities – renewable energy, bio-degradable and recyclable products, electric vehicles and the like. Seeking out companies which capitalise on these new opportunities can be achieved through ESG investing.
Favourable customer outlook
A common consumer today is becoming more aware –more aware of both his rights and responsibilities. Companies mindful of their environmental impact and looking to reduce their footprint find favour even amongst its customers. A study revealed that 65% of consumers were willing to pay more for brands that roll out sustainable products2.
ESG investing also seeks out companies that focus on overall customer satisfaction through customer friendly and customer centric policies. It’s said, ‘a satisfied customer is the best business strategy of all’ – going a long way in business success.
Looked upon favourably for global funding
All in all, companies that meet the ESG parameters are finding favour amongst global investors as well. Global ESG focussed funds witnessed a record inflow of USD 45.7 billion in the first quarter of 2020, when several other fund categories witnessed outflows3.
How can you be part of ESG investing?
An era of ESG focussed funds are emerging in India. These funds focus on seeking out ESG compliant companies that may have growth potential in the long run. Each potential investment is scored on ESG parameters before including them in the portfolio.
The net result – seeking to build an investment portfolio of companies that have the potential for sustainable growth in the long run!
Watch out this space for more such funds and how you can opt for ESG focussed investing.
“Aim to invest in Aditya Birla Sun Life ESG Fund“
Global Environmental Outlook – 6th edition released by United Nations in March 2019
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.