ESG

The ESG boom: “ethical investing” has taken off – but what does it actually mean?

Monday, September 13, 2021 by Robinhood Snacks | Disclosures
_Up close and personal with ESGs [David Trood/ DigitalVision via GettyImages]_

Up close and personal with ESGs David Trood/ DigitalVision via GettyImages

ABC, easy as… ESG? Socially responsible investing, aka ESG (or environmental, social and governance) investing, has boomed recently. ESG criteria — like a company’s enviro-impact, board diversity, and/or exec compensation — is used by some firms and investors to evaluate companies for funds or personal portfolios. S&P Global, Bloomberg, and Moody’s are a few of the companies that rate and measure ESG performance.

Spell it out… Like with most stock purchases on public markets, people aren’t directly funding ESG-conscious companies when they buy their stock. But investors gain voting rights that could help companies make better decisions. Increasingly, people are using their values and ethics to guide investment choices — especially Millennials.

  • 10X: Investors contributed $51B to sustainable funds in 2020, compared to less than $5B five years ago.
  • 90% of Millennial investors say they believe in sustainable investing, according to a 2019 report.
  • $285B: How much ESG funds grew last year — nearly double their 2019 value.

Lean in to green… This month, the SEC said it may require companies to report climate-risk info along with their annual earnings. Think: emissions metrics and progress toward climate goals. In recent years, companies have been doubling down on ESG initiatives — especially environmental ones. Big Tech companies are the largest allocations for most ESG funds. Amazon pledged to become carbon neutral by 2040, Microsoft committed to become carbon-negative by 2030, and Google bought enough wind and solar energy in 2019 to power 500M European homes.

THE TAKEAWAY

The next step in ESG is validation… Many aspects of ESG investing still aren't well-defined. Dozens of sources share company ESG scores, but many use different criteria that can be tough for companies to measure. It can also be hard to measure ESG investing’s impact: One study found that increasing ESG investment didn't lead companies to reduce pollution, or improve workplace safety or board diversity. The next step is having clearer, standardized criteria to assess ESG investments — and keep companies accountable.