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In recent times, the investment in ESG which stands for Environmental, Social, and Governance has increased notably. 

E, which stands for the Environment, includes issues like change in climatic conditions, the effect of greenhouse gasses from industrial pollution, treatment of wastewater, and other environmental issues. 

As every industry has some impact on the environment, it is their duty to reduce the negative impacts to make this world a better place. The way companies use the energies and leave a carbon footprint destroys nature and the environment around us. It has a multi-layer environmental impact that needs to be taken care of properly. 

S, which stands for Social responsibilities like equal pay, engagement of employees in the company, training and development, career advancements, and many such issues which are required to build an overall better society.  

While the social impact might not be visible in the initial days, it has an integral impact on the community of people and society as a whole. A company’s behavior towards its employees and staff can have effects on society which might not be right in front of the eyes. 
 
Finally, G is Governance and it includes diversity in the board members, how they handle bonuses, compensation, transparency in communication, and the overall governance of the company. 

Governance controls everything else. The governance needs to be strong enough to not pave the way for violations of rules in the industry, or the best practices. There must be transparency as well. The internal system of the firm needs to be in good hands and they must follow standard procedures and make effective decisions.

Why is ESG important to investors?

The companies having high ESG scores are getting more funds from socially responsible investors as well as from the green investment funds. They are also found to be having less cost of capital. The companies also have lower volatile earnings and thus the market risk is also lower compared to the companies having a low-ESG score. 

Is ESG effective?

Though ESG investments are on a rise, still it is in a very nascent stage. Moreover, the investors are more focused on the companies which are generating more returns but not on those which are working towards making the environment better. Energy-efficient technologies, carbon capture, and similar processes are yet to be funded properly. Some of the companies which are following the ESG guidelines are Infosys Ltd, Tata Chemical Ltd., ITC Ltd., and Mahindra & Mahindra Ltd.

If you want to build a great future for the next generation, give them a better environment, you should start investing in companies that have strong governance in the first place, then social responsibility skills, and finally work toward making the environment better. Along with investing in ESG funds, you can also do your bit by saving electricity, going paperless, using public vehicles to save petrol, and other non-renewable energy.

Save Earth,Save Yourself