One of the most trendy phrases you might’ve heard these days, right? But why are they trendy and what is even ESG? For all the non-finance geeks and finance geeks, this article will just be your savior!
What Is ESG?
ESG is the criteria that act as a set of standards for the operations of a company that the investors use to identify potential investments.
This ESG rating provides a great way to measure a company’s exposure in these three aspects, namely Environmental, Social, and Governance,
Origin Of ESG
These ESG issues came to light in the year 2006 in the United Nation’s Principles Responsible Investment report. This is when for the first time the ESG criteria were required to incorporate for the financial evaluations of companies.
Why ESG Ratings Is So Popular?
The very basic reason the ESG ratings are popular is that they are IMPORTANT! This is why,
Decision Making - The companies with good scores on the ESG ratings are seen as better opportunities with lesser risks. So companies and investors use it and prefer it before making a decision.
Planning - Companies use the ratings to help them make action plans and compare that perfect to judge their performance and become even better in the near future.
Let's take Apple, for example - They changed their whole packaging and logistics to become more ESG friendly. With the launch of the iPhone 13, Apple announced that it would stop supplying chargers in the box. Since then Apple made over $10 Billion in just selling extra chargers and cables. This move made both shareholders and environmental investors happy.
Future Of ESG Investing
ESG ratings have been acting as great support for the investors in specific, which was pretty evident when from 2020 to 2021, the flows into ESG funds almost doubled. It is expected that it will be staying on trend for a long time and the ESG assets might even value around $30 trillion by 2030 as per a report.
Conclusion
Before investing in ESG-friendly companies, do read the whole criteria on which rating has been given. It is pretty evident how beneficial the ESG ratings are, so one thing is for sure they are here to stay and might even gain more popularity.
