They are important to consider
when making investment decisions, as they help investors identify companies
with the best and worst environmental, social and governance practices.
Companies with positive « ESG » profiles outperform the market over the long term
because they are more sustainable and socially responsible.
Companies with negative « ESG » profiles underperform the market over the long term
because their practices harm the environment and drive customers away.
For example, investors who
care about sustainability will prefer to invest in companies that are committed
to reducing their impact on the environment.
By doing so, these companies
will gain a reputation for being environmentally conscious, which will appeal
to customers looking for responsible companies.
Additionally, socially
responsible businesses tend to align themselves with causes that benefit
society as a whole;
This helps them attract
customers who are also meant to do good things for others.
By investing in these
companies, sustainable investors can help drive positive change in their
industry.
Companies that focus on these
three areas, namely, environment, social and governance, help to create better
working conditions for employees, which leads to better morale and increased
productivity.
Negative « ESG » factors create serious problems that harm business
practices and drive customers away.
For example, many people think
that investing in companies that pollute the environment creates a bad image of
their industry or their country.
When customers walk away from
these companies, it reduces their profitability, allowing a vicious cycle of
effects on their industry.
Additionally, some people felt
that investing in companies that use child labor or forced labor creates bad
business practices for their country or industry.
Although some platforms
indicate which investments have a good or bad « ESG »
profile, other platforms choose not to take « ESG »
values into account when making investments.
Some people believe that
reviewing « ESG » metrics can be time-consuming and unreliable
compared to other metrics such as the price/earnings ratio (P/E).
Others feel that looking at « ESG » values can be misleading because there is no
standard way to measure them across industries or countries, making comparisons
difficult and unreliable overall.
Overall, examining the
environmental, social and governance factors of an investment allows investors
to make more informed decisions about corporate practices.
In conclusion, companies with
positive “ESG” profiles outperform the market over the long term because they
are more sustainable and socially responsible, while companies with negative
“ESG” profiles underperform the market over the long term because their
practices harm the environment and distant customers.
It is important for investors
to keep up to date with industry news so that they can make informed decisions
about sustainable practices when making investments.
