Now, let’s explore the three pillars that form the bedrock of ESG investing: Environmental, Social, and Governance. Buckle up because it’s going to be quite a ride! 🎢
Environmental - The Earth needs heroes! ♻️
The ‘E’ in ESG stands for Environmental. But what does this really mean in the world of investing? Well, it’s all about understanding how companies interact with the natural world.
Remember our friend Tesla from the previous guide? They’re all about electric vehicles, thus significantly reducing carbon emissions. That’s a big thumbs up on the environmental front.
But it’s not just about reducing emissions. The ‘E’ takes into account all the ways in which a company interacts with the environment. This includes how they manage waste, their water usage 🚰, deforestation practices, and even how they deal with those pesky plastic straws!
Here’s a fun fact to get your gears turning: According to a report by the World Wildlife Fund, if global food waste were a country, it would be the third-largest emitter of greenhouse gases.
So, when a company like UK supermarket giant Tesco commits to zero food waste by 2025, they’re making a big environmental impact!
Social - Because people matter 👫
Now, let’s move on to the ‘S’, which stands for Social. This pillar is all about the people – employees, customers, suppliers, and the wider community.
Companies with high ‘S’ scores are typically those that treat their workers fairly, value diversity, and support the communities in which they operate.
A great example here is Unilever, a consumer goods giant. They’re not just making our favourite soaps and ice creams, they’re also committed to improving health, hygiene, and living conditions for people around the globe.
They’re aiming to positively impact 1 billion people by 2030. Now, that’s a company that takes the ‘S’ seriously!
Governance - Running a tight ship ⛵
Last but definitely not least, we come to the ‘G’ in ESG, which stands for Governance. This might not sound as exciting as saving the planet or improving lives, but trust us, it’s just as important.
Governance relates to how a company is run. It includes aspects such as diversity in leadership, executive pay, business ethics, and shareholder rights. Good governance practices can help prevent disasters that could seriously hurt a company’s reputation and bottom line.
Remember the Volkswagen emission scandal we mentioned earlier? It’s a classic case of poor governance leading to financial loss and reputational damage.
In contrast, take a company like Microsoft, which has consistently received high governance ratings due to its strong board diversity, executive compensation practices, and commitment to ethical conduct.
So, there you have it, the E, S, and G of ESG investing. Each of these pillars plays a critical role in assessing a company’s broader impact on the world.
By understanding these factors, you can invest in companies that align with your values and potentially avoid those pesky risks that can hurt your returns.
As we journey deeper into the world of ESG investing, remember, it’s not just about the figures on a balance sheet, it’s about making a positive impact in the world. That’s exactly what we discuss in the next chapter!