Updated: Nov 10, 2021
On the previous blog, "Introducing ESG Investing: The Modern Way of Investing", we discussed how investors are considering ESG to help reduce overall risk in diversifying portfolios for long-term success. ‘ESG’ refers to Environmental, Social, and Governance, which is a set of standards for a company's operations that investors use to mitigate risk and aligning funds with objectives that have ethical motivation on disclosed performance.
Today, you will learn more about the Environmental aspect of ‘ESG’ and how it is used in evaluating any environmental risk a company might face. Businesses are involved with environmental issues because they are continuously having an impact on the world and our future. Environmental issues include climate change, greenhouse gas emission, recycling, and natural water. Those environmental factors are just a few of the most visible component of ESG performance to investors, customers, and other stakeholders. Concerns rise for everyone globally because resources are having an effect and are being affected by the environment. Knowing this, it is important to select the most eco-friendly funds to invest in so we can protect the environment and promote sustainable development of the planet for future generations. ESG measures help analyze each category to select securities aiming to minimize their negative impact on the environment.
Companies are often evaluated on how they handle their attitude, operations, and actions towards environmental issues. Obtaining a good score indicates a high degree of transparency in data publicly and excellence in overall ESG performance. They must follow certain policies and practices on the environment, if not they will be exposed to financial and legal risk.