ESG is an acronym that stands for Environmental, Social, and Governance. Analysts and investors are increasingly using non-financial criteria to evaluate potential investments. When assessing major risks and development potential, these aspects are factored into our due-diligence process. Companies that are well positioned to expand and benefit from the transition to a more sustainable future are the focus of ESG investing.
Socially Responsible Investing (SRI) and other ideologies influenced ESG investing. The main distinction is that SRI was negative, whereas ESG is positive. When selecting assets, earlier investing models such as SRI used negative screening and value judgments. ESG looks for the bright side: it seeks out positive values rather than dictating judgement. ESG investment is ultimately about accumulating and protecting wealth.
The term “sustainability” is a broad and ambiguous concept. It indicates that a firm considers a variety of ESG criteria and that a potential investment has the ability to grow sustainably over time. It’s often used as marketing jargon.
Ethical investment entails investing in companies that adhere to one’s ethical beliefs while avoiding those that do not. This is the most personal and oldest sort of stock screening in the industry. An investor may, for example, want to keep cigarette or weapons firms out of their portfolio.
ESG Investing is based on the idea that profit and long-term viability are not mutually exclusive. ESG measures are a great tool for evaluating a company’s potential growth.
Environmental Issues: Climate change, biodiversity, pollution, waste, water scarcity, and the usage and extraction of raw materials.
Social Issues: Consumer and workplace safety, community relations, supply chain and material sources, and social impact responsibility.
Governance Issues: Diversity, transparency, corporate ethics and individual shareholder rights.
Within the investment sector, quantifying ESG metrics in order to analyze possible investments is a strongly debated and dynamic topic. For investment professionals, ESG research and investing is becoming increasingly important, since they must assess the impact ESG issues will have on specific assets, sectors, and markets. Despite the fact that the financial industry has yet to identify measurable parameters, these aspects must be considered when performing thorough analysis and assessing investment opportunities. We take a proactive approach at Cedar Smith Management, incorporating several ESG criteria into our investment selection process. In the end, these will have an impact on investment pricing and value.