If you have money to invest you sure will want to invest in a company with a good environmental, social, and governance (ESG) record. New research has revealed that companies that have strong ESG policies become more profitable. The traditional arguments for good ESG policies are based on good public relations, worker retention, and that it’s just the right thing to do. Now people championing ethical capitalism through ESG have another argument to make.
Infosys research found that a 10-percentage-point increase in ESG spending correlated to a 1-percentage-point increase in profit growth. This occurred relatively quickly: 41% of respondents surveyed said they experienced a return on their ESG investment within a two- to three-year window.
ESG efforts include looking at how much renewable energy a company might purchase and at cutting greenhouse-gas emissions, even going all the way to net-zero emissions, and as a result, lowering energy bills. Other efforts might focus on bringing more women or people of color on as board members and can even inform the “G” in ESG — governance. Good governance might include transparency with shareholders or linking CEO compensation to progress in the “E” and the “S” areas.
The Canadian organization Shareholder Association for Research & Education (SHARE) just released a report on how supply chain management can help promote and enforce human rights. Some countries legally require companies to report the status of human rights and any liabilities that may stem from neglect or worse. Canada, however, does not. SHARE has looked at other parts of the world to inform how the Canadian government and companies can better the world while reducing risk for investors.
The report, â€œThe Rise of Supply Chain Transparency Legislationâ€ (PDF link), reviews a range of supply chain transparency legislation from the U.S. and across Europe, including the California Transparency in Supply Chains Act 2010 and the UK Modern Slavery Act, to understand its form and impact and to learn from best practices already adopted in other jurisdictions.
SHARE’s report examines best practices in supply chain reporting from other jurisdictions and makes recommendations for Canada, including that a reporting regime should be consistent, but flexible; that it should be publicly accessible; updated annually and certified by top management; and that there should be mechanisms to ensure compliance.
“A regulatory framework for supply chain transparency reporting ensures consistency and comparability between the information provided by each company in a sector,” says Delaney Greig, an analyst with SHARE and co-author of the report, in a statement. “Reporting requirements should help companies to approach supply chain due diligence in a way that ensures efforts are effective and transparent while allowing companies flexibility to do what is best for their situation.”
Most everyone knows that fossil fuel energy is on its way out and renewable energy usage is accelerating. This means that air quality will improve and energy will become cheaper, all good things. Yet, there’s a large group of companies that don’t see the obvious. Enter the divestment campaign. Divestment campaigns have been around for years and are showing great strides in getting shareholders to take their money from world-destroying industries and put that money into other, friendly, industries.
This year divestment initiatives doubled to $5.2tn! That’s a lot of money leaving oil companies.
The new report, produced by Arabella investment advisors for theÂ DivestInvestcoalition, collated public pledges to sell off some or all fossil fuel investments and added up the overall investments managed by those institutions. The total was double theÂ $2.6tn reportedÂ by the last analysis in September 2015.
It is often difficult to calculate the precise proportion of fossil fuel investments in complex funds, but about $400bn of the $5.2tn total is likely to be in coal, oil and gas. Asset managers controlling $1.3tn â€“ a quarter of the total â€“ have also committed to increasing their investments in clean energy to accelerate a transition to the low-carbon economy.
It turns out that people born after 1980 care more about investing in companies that make the world better than investing in companies that don’t. Traditionally investors were told to only care about one thing: profit. Younger investors have seen that way of thinking not work out given the ongoing lame economic performance of that attitude and the environmental destruction it wrought.
It’s good to see money going to places that can make the world a better place.
Another reason why itâ€™s anticipated that Millennials could increase demand for impact investing is they indicate less interest in traditional style equity investing. A study by U.S. Trust found that 51% of Millennials feel that investing in equities is overrated, and are also hesitant about investing in the stock market due to fears of losing money. However, they are still interested in investing, as 81% believe that buying investments and holding them over the long term is the best way to grow money over time.
One way that Millennials are putting fears aside and putting their money to work is investing in good causes. As seen below, they are more willing than older generations to take on higher risk and lower returns in order to invest in companies that positively affect society or the environment.
It’s no secret that carbon trade, carbon caps, and various other policy tools improve economies and diminish negative environmental impacts caused by economic activity. Yet, the myth that having a sustainable economy isn’t possible with a growing economy.
Environmentalists have been arguing for better policy and enforcement for decades, and now global investors are also arguing for the same thing. Hopefully with this announcement and others from the recent UN Summit on Climate Change we will see good movement on improving our economy and planet.
â€œThe international investor community has today made it clear that the status quo on climate policy is not acceptable,â€ said Stephanie Pfeifer, chief executive of the European Institutional Investors Group on Climate Change. â€œInvestors are taking action on climate change, from direct investment in renewables to company engagement and reducing exposure to carbon risk.â€
â€œBut to invest in low carbon energy at the scale we need requires stronger policies.â€
The worldâ€™s total renewable energy capacity grew at its fastest pace ever in 2013, but global investment in renewable energy still only amounted to $254 billion in 2013. The International Energy Agency (IEA) has estimated that global investment in renewables much reach $1 trillion every year from now until 2050 if the global temperatures are to be kept from rising more than 2Â°C â€” the threshold beyond which scientists think climate change will get truly catastrophic. But the IEA anticipates global investment will instead plateau around $230 billion annually through 2020. Bloomberg New Energy Finance thinks two-thirds of the $7.7 trillion the world will likely invest in power plants between now and 2030 could go to renewables â€” but that still falls well short of the mark.