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One of the biggest topics talked about in corporate board meetings and among investors is ESG investing — that is, investing in stocks with positive environmental, social and governance profiles.
Explaining ESG Investing
Countless investors take into account the ethics and environmental influence of a company before investing. For these investors, social and governance factors carry higher values as they pertain to the work environment and the overall goals of the company. For certain investors, these areas are just as important as financial variables when it comes to deciding whether or not to invest their hard-earned money into a company. ESG investing involves factoring in a company’s strategies and growth in these areas:
- Environmental: Future investors want to know what steps companies are taking to conserve the Earth’s resources and continue the current business but in a sustainable manner. What is the company doing to protect the ecosystem?
- Social: Some investors also find it necessary to know the connections that businesses have with their employees and vendors. Do they provide equal opportunities? Are they personable and kind with other businesses, customers, and the community they’re based in? What part does the company play in the growth and success of the community?
- Governance: Also notable to ESG investors is distinguishing what precautions a company takes to watch their board and management team. What company procedures and directives are in place to guarantee appropriate and fair management of the company, and equal opportunities despite individuals’ demographics?
The infographic is helpful on this issue, too. Organizations with solid ESG scoring and ESG reporting have less risk of regulatory fines, upset shareholders, public embarrassment, and other potentially destructive, value-obliterating events. In addition, companies that manage employees in a socially responsible way are less likely to experience turnover and more likely to have a passionate and highly productive workforce. These qualities and others make high-scoring ESG companies excellent candidates for strong long-term returns. To learn more, continue reading.
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