Gaining investor confidence is key for publicly traded corporations to thrive. While many components play into brand reputation and investor confidence, Environmental, Social, and Governance (ESG) topics have emerged as influential factors for many investors in recent years and will continue to do so in coming years.
What is ESG?
ESG stands for Environmental, Social, and Governance and the umbrella term encompasses indicators that house corresponding data. The “Environmental” in ESG refers to how a company impacts and interacts with the environment, including creating greenhouse gas emissions, waste, and resource usage. “Social” references a company’s impact and interactions with its community, industry, and stakeholders. Social impact can be measured by employee diversity, community giving, and customer relationships. Governance refers to an organization’s processes, structures, and policies related to ownership, risk management, and leadership. Examples include data quality verification processes, risk management, and shareholder structure.
How does ESG relate to investing?
ESG investing refers to a trend of investors utilizing ESG criteria to inform financial decisions. This allows investors to increase investments while also making a positive social impact. The ESG investing market is already large, with Bloomberg Intelligence estimating that ESG-related investments will surpass $50 trillion by 2025.
ESG is not just beneficial to capture ESG-minded investors, it also provides benefits for the companies whose stocks are being traded. Studies show that ESG funds survive longer than non-ESG funds. On average, 77% of ESG funds last over ten years compared to 45% of traditional funds. This is likely due to a mix of performance indicators and the growing number of investors prioritizing ESG investments.
Not only do ESG-related investments sustain longer, but a Reuters study found they also outperform excess return benchmarks globally. Companies that prioritize ESG typically perform better because an ESG-based approach to strategic decision-making prioritizes risk management and optimization. Organizations that were early adopters of ESG principles are also more interested in investing in innovations, making them more likely to be industry leaders.
Ready for investors to start flocking to you? Here’s what to do next.
If your organization is ready to start reaping the benefits of ESG, get started with Green Impact. Our team of sustainability and technology experts will help you set up your ESG data tracking in Salesforce Net Zero Cloud, the best-in-class ESG platform. With a single source of truth for your ESG data and powerful analytics, your organization can begin optimizing your processes, decreasing costs, and minimizing climate-related risks. Visit www.greenimpacttech.com to learn more about how we can help your company stay resilient and competitive.