Whether you act as a solo investor or you speculate through a business entity, there are an ever-growing number of options available to you. There are traditional means such as stocks and shares, foreign exchange, and commodities, each of which offer their own benefits and drawbacks.
Becoming increasingly popular is ethical investing, which covers a broader scope and may even encompass some of the markets mentioned above. But what exactly is ethical investing (sometimes known as ESG investing), how much of an impact is it making, and why are we seeing these trends? Read on to find out more.
What Does ESG Stand For?
ESG stands for Environmental, Social, and Governance. These three criteria are what many modern investors are looking at before they make a decision on whether to back a company or venture.
It’s a way for investors to measure a business’ values against their own. For example, how does that organization interact with its physical environment? How does it connect with our society? And how is it governed? Is it run fairly and democratically? All of these factors will influence the investors’ thinking, and the outcome will depend on their views.
What Is Ethical Investing?
To offer a succinct summary, Investopedia’s definition of ethical investing is “the practice of using one’s principles as the primary filter for the selection of securities investing.” When it comes to ethical investing, decisions may not be made solely on a financial basis, as is the case across many markets. Instead, an individual or company might make judgements based on moral grounds. For example, ethical investors may choose to shun businesses in the gambling, alcohol, or smoking sectors, as they promote divisive products that are associated with stigmatized activities.
How Is ESG Investing Developing?
It’s a trend that is booming around the world. According to data from the Global Sustainable Investment Alliance, ESG investing reached more than $30 trillion at the start of 2018 – a 34% increase over two years. And it’s believed that upward surge is only set to continue as consumer and investor attitudes demand greater transparency.
What Is Driving These Changes?
There are three main drivers of the surge in ESG investing:
- Public awareness of global challenges is increasing all the time. High-profile protests and pressure groups are creating headlines and demanding that corporations and governments change their ways.
- In turn, businesses have little option but to bow to that pressure and are in fact no longer waiting for regulatory changes to force them into action. Instead, they’re being proactive in investing in ethical practices before it becomes an issue.
- Governments are also facing pressure to alter legislation and make a significant impact on the sustainability of the corporations that operate within their jurisdictions.