Matthew Loughran, EMBA
October 20, 2021
Social impact companies are raising capital under the ESG umbrella
What is ESG Investing?
Over the last decade, environmental, social, and governance (ESG) investing has seen incredible growth. What is ESG investing?
ESG investing is based on three principles:
Ethical Responsibilities
Socially Responsible Investments
Environmental Sustainability
The growth in ESG investments is because they are becoming more mainstream. Investors are looking for companies doing well financially and are also mindful of their environmental and social impact on the world.
Environmental issues like climate change and water scarcity are also starting to affect financial decisions. According to the United Nations Principles for Responsible Investment, “When considering investment decisions, investors should be mindful of the potential impact.”
Criteria
It seems that ESG investing is on the rise. With more and more consumers demanding companies to be more accountable and better society, business leaders are finding ways to do so. In addition, with new regulations and standards coming into play, company CEOs and CFOs are scrambling to find the best way to keep up and to keep their companies afloat.
I am a massive proponent of ESG investing. However, for a company to succeed, they need to do more than generate profit for their shareholders. Companies also need to provide a return on investment for their customers and society.
The positive impact on employees
Many corporations are starting to take more responsibility for their companies by implementing new policies that require investing in sustainable practices. They are taking this action to allow their company to provide benefits to their employees that go beyond just monetary compensation.
The American Psychological Association released a study that found, “stress is up to 10 times higher in organizations with unhealthy climates than in those with healthy climates.” By providing their employees with an environment for emotional intelligence, they are experiencing less stress and increased productivity.
This new wave of investing in sustainable practices is so important because it provides you with more environmentally conscious companies and provides you with an increased sense of stability knowing that your company cares. The benefits are not just for their employees, though; these policies are also to provide companies with investors. As a result, institutional investors are becoming more aware of the ESG practice, which is shaping their investment decisions to impact the environment, society, and stockholders.
Investment
Currently, only around 2% of global investments are going to ESG practices, but this number increases each year. At the current rate, the number of investments going to ESG should double in the next five years. Recently, many major financial institutions have spoken out against carbon investments. One of these is JP Morgan, who announced it would be selling off coal companies that it owns.
Investors are now starting to think about sustainability considerations, now that ESG has become a part of the mainstream conversation. Major investors such as Harvard University, Goldman Sachs, and the New York City Employee Retirement System have already incorporated ESG considerations into their investment strategies.
The rise of ESG investing is driven primarily by changes in investor sentiment and the emergence of new ESG investing products. In addition, the willingness of investors to invest in companies that also take a sustainability approach to how they do business has grown considerably in recent years. ESG investing appears to have a promising future. A recent survey by Fidelity shows that 65% of millennials, the very generation for whom sustainable investing is supposed to appeal, plan to invest in intelligent, sustainable, and socially responsible companies.
The rise of ESG investing is being driven primarily by risks from unsustainable investing and the need for more socially responsible business models. In addition, pressure from shareholders and an upswing in foreign companies with sustainable policies are also contributing.
The need for this type of investment has arisen due to the increasing awareness of the consequences of corporate decisions on the environment and society at large. As a result, the investments of ESG companies are not only acknowledged by businesses and governments but also by consumers.
A recent study by Morgan Stanley and the Global Impact Investing Network (GIIN) found that 1 in 5 Millennials and Gen Z-ers would prefer to invest in businesses with a social impact purpose.
How will your business include ESG?
Matthew is an accomplished senior executive and social impact entrepreneur in the emerging technology field. Matthew is the principal at Midtown West Media, founder, and editor of Social Impact Insider. Matthew possesses a history of multilateral stakeholder alignment across public, private and faith-based sectors leveraging technology for social impact. Matthew holds a B.S. in Biology and Marketing from Loyola University Maryland; and an Executive M.B.A. from Washington State University. Matthew also holds multiple certifications in strategic board service including long-term growth, M&A strategy, cybersecurity, and strategic communications.
