Have you ever heard the term responsible investment? Well, if you haven’t, it is fine as we will dive deeper into learning all the important facts related to responsible investment. For starters, Responsible investment is a holistic approach which aims to invest by looking at all the environmental, social and governance (ESG) factors for making better investment decisions. Not only will it help to handle risk in a better way and indulge in producing sustainable and long-term revenues or returns.
Description of environmental, social and governance (ESG) factors:
There are a number of environmental, social and governance (ESG) factors, some of its vital examples are given below:
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✓ Deforestation and Pollution
✓ Change in climate
✓ Depletion of Essential Resources
✓ Waste generation and handling
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✓ Good working conditions
✓ Better health and safety
✓ No child labor or slavery
✓ Employee relationship and its diversity
✓ Managing conflicts effectively
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✓ Equal pay to men and women
✓ Strategy in tax management
✓ Political donations
✓ Abide all laws
Why is there a need of this responsible investment?
Responsible investment is a necessary element and must be incorporated in by everyone for the following reasons:
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✓ Gain a recognition in the market since ESG factors are useful in risk determination and achieve higher returns.
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✓ Gears up company performance and returns on investments in a short time span.
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✓ Helps in fulfilling all the legal requirements that are beneficial to necessary to safeguard the interests of all the investors.
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✓ Provides a competitive edge from others as people value more responsible investment services than the sheer profit earners.
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✓ All the beneficiaries need a summary of all the transactions made from their money
✓ Gain more reputation by incorporating all the ESG factors
Does responsible investment mean the same as a socially responsible investment (SRI)?
The simple answer is No. There may be some similarity in the approaches however both have a line between each other that separates them. Let us see some similarities first:
✓ Socially Responsible Investing (SRI)
✓ Green Investment
✓ Sustainable and Long-term investment
✓ Impact investing
✓ Ethical Investment
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Socially Responsible investment mainly focusses on the environmental issues and different aspects related to it. However, it is essential to follow responsible investment as not incorporating it is same as ignoring all the opportunities and risks that might have been a generator of high returns.
Is responsible investment about screening and divestment?
Responsible investment is not about taking out investment from any sector rather it widens the options to think from a social point of view and take into consideration all the aspects of ESG model to ensure low risk and profitable long-term revenues.
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Some investors like to engage into these factors along with other investors while others perform a full quantitative and qualitative analysis of the company to understand where the amendments need to be made so that ESG factors do not get violated. While it is mandatory to encourage all the investors to share the work done in ESG zone so as to enhance the company goodwill, there is also a need of keeping a check on all the risks that subside and contribute in the all-around growth of the investors.
Thus, both responsible investment and socially responsible investment aspects should not be neglected rather embraced as opportunities to achieve more profitable revenue and build a better company value in the market. It may not benefit much in the short term however it is a powerful strategy for long-term reliability build up and achieve a top level position in the market.