In the not-so-distant past, investors were often stuck in the idea that chasing capital gains and taking the altruistic route were inherently at odds with one another. As Harvard Business Review points out, until the mid-2010s, the majority of investors largely ignored environmental, social, governance (ESG) data.
Thankfully, more and more individual investors and corporations are waking up to the reality that doing the right thing is not mutually exclusive to the bottom line. According to Bloomberg, global ESG assets are predicted to reach a whopping USD 40 trillion by 2030. Investing in businesses and organizations with clean labor rights records and responsible carbon footprints is not only ethical, but also critical to long term success.
Here are just a few of the reasons why.
- It’s better for business.
In analyzing over 2,000 U.S. companies over the course of 21 years, George Serafeim of Harvard Business Review, along with Aaron Yoon and Mozaffar Khan, saw that the firms that improved on material ESG all outperformed their competitors by a substantial margin. “The only way to outperform in this new era will be for companies to make material ESG issues central to their strategy and operations, to go above and beyond their competitors, and then to measure and communicate their superior performance,” Serafeim writes.
- It’s only going to become more important in an increasingly global market.
Ethical investments do more than clean up a corporation’s image. As firms push into new international markets, they often run into new regulations. More and more governments, particularly in the European Union, are imposing ESG regulations on firms. As many investors expect this trend to continue, businesses currently investing in ESG-related strategies are poised to perform better globally in the long run. As the American Institute for Economic Research put it “governments activate the surge in ESG as forward-looking investors aim to divest from soon-to-be penalized sectors such as oil, natural gas, or firearms.”
- Investing in Green Energy technology is critical in our warming world.
According to the European Investment Bank, “The scale and speed of the investment in clean energy solutions and innovations will determine whether we can still achieve a net-zero emission transition.” Climate activists agree that top-down regulations will be essential to slowing global warming, but innovation in the private sector may play just as crucial a role. The stakes are incredibly high to prove that green energy can be a sustainable and profitable long term alternative to fossil fuels.
- Eco-friendly companies and organizations prioritize innovation.
Although no one realistically envisions fully phasing out fossil fuels any time in the near future, the reality is that these industries are stuck in the past. This year, coal stocks in particular have continued to plummet, even as the industry continues to crank out supply. And although crude oil supplies are hardly running out yet, extraction is going to become ever more costly and less efficient in the decades to come. Rather than evolve, these industries are attempting to preserve the status quo, which is not a mindset that inspires creative thinking or attracts high-level talent interested in making a difference.
In stark contrast to their oil and gas counterparts, green energy companies value solution-oriented innovation. Fighting climate change requires thinking outside of the box, which appeals to the movers and shakers of the world. The last two decades have seen remarkable leaps forward in electric cars, wind, solar, and even hydrogen power. And it’s paying off—renewable energy stocks have consistently outperformed their fossil fuel counterparts for the last decade.
- Socially responsible companies inspire greater employee loyalty.
How dedicated employees are to a firm can make a world of difference in the company’s overall success. Study after study has shown that organizations that invest heavily in corporate social responsibility have better employee retention and overall satisfaction. It’s an intuitive concept; history has countless examples of military victories in which a smaller force of people fighting for a cause they believed in overpowered a collective of mercenaries. The same principle applies to the business space. Ethical companies inspire their workforce to strive harder and give them a sense of pride in what they do.
- It has the power to make meaningful, lasting change.
Socially responsible impact investing makes financial sense, but that’s clearly not the only reason to do it. The fact of the matter is that society cannot depend on the nonprofit sector and government regulations alone to create a better world. When both firms and individuals choose to put their money where their values lie, they have the capacity to change the world for the better. Case study after case study shows that these decisions can make a real difference.
Posted 27 Nov 2024
