ESGs: A Growing Green

What is it?

By definition, ESG stands for environmental, social, and governance. ESGs usually refer to the criterias of company operations that investors can use to screen potential investments. Environmental can refer to a range of things, for example, the company’s strategy regarding sustainability, while social can refer to factors across from company diversity to supplier relationships. This acronym therefore encompasses a lot of different information, and is becoming increasingly important today. Boston based firm Cerulli Associates estimated 88 percent of total U.S. public market assets are affiliated with a signatory of the United Nation’s Principles for Responsible Investment, six principles that include a commitment to “incorporate ESG issues into investment analysis and decision-making processes.”

Why is that?

Investors of today have become increasingly interested in ESG criteria because the increased importance of what ESGs stand for, but also because mutual funds and firms have begun to offer exchange traded funds (ETFs) which follow ESG criteria. Notably, Fidelity has recently launched socially conscious funds which are based off these ESG criteria.

What does this mean?

Well, while the situation is still being played out, the increase of investments regarding ESG criteria and the growth of ETFs focusing on social impact suggest that both investors and companies have started to care more about creating impact, and are trying to do right by the world. Many companies, for example KRAFT, have enacted impact focused initiatives to spread positive impact. It is also expected that ESGs also act as a risk mitigator to companies dealing with resources. Through ESG guidelines, huge mistakes like BP’s 2010 oil spill can be avoided.

So, what now?

This is a question I’d also like to know the answer to. What impact will ESGs have for our world, and how are ESGs expected to change over time? ESGs are still a relatively unfamiliar in the business world, especially in America. Client unfamiliarity with ESGs and the perception that ESGs underperform create difficulty in defining boundaries for ESGs and really making use of them. However, I believe that over time, and very quickly, ESGs will make their place into every business in the US. This will create a greener world for our future and today to live in.