In the wake of a more environmentally-friendly generation, millennials favour making investments that correspond with their values. This is a large part of what drives the demand for sustainable investments, so offering value-based investing choices to millennials will aid in luring new business acumen to your company.
Sustainable investing, also known as Environmental, Sustainability, and Governance (ESG) investing aligns investment decisions with the investor’s environmental and social values. On the other hand, they will still try to generate long-term returns.
Sustainable investing or ESG investing is a strategy where you invest in a way that benefits the environment or society. You can avoid industries or companies whose products do not correspond with your morals, values, and objectives. Malaysian businesses are responding to the need for sustainability as problems in some industries become more apparent. Out of the top 50 Malaysian public-listed companies (PLCs), 94% already have ESG plans in place.
Why is sustainable investing important?
The evolution of investing, in many respects, can be understood as including sustainable investing. Participants in the sector are beginning to realise that some ESG factors have an economic impact, particularly over the long term, and that it is crucial to consider these variables.
The growth of sustainable investing is significant, especially considering that by 2050, it is expected that there will be an additional 2 billion people on the planet. This will increase the need for food, water, and energy, necessitating the development of novel infrastructure enhancements to meet this demand. People would want to see energy generation and distribution advances, better health care, and more efficient transportation.
As the interest in sustainable investing continues to grow, investment organisations feel more pressure to move toward the sustainable investing model. In an era when the investment industry is challenged by rising end-clients, challenging economics, regulatory expectations, and the decision to maintain the status quo will leave the industry vulnerable to decline.
How does sustainable investing work?
Ideally, ESG investment decisions are made according to the following ESG factors:
Corporate climate policy, energy use, waste generation, water use and conservation, pollution, carbon emissions, preservation of natural resources, clean technology, and treatment of animals are a few environmental criteria in ESG investment. You can also use these criteria to assess potential environmental concerns a business may face, so you will know how to mitigate those risks.
As one of the human race’s most economically significant occurrences, climate change is already affecting economies and financial markets. This situation will likely have a more substantial influence on sustainable investing soon.
The social impact of sustainable investing is to support social change. Analysts closely scrutinise the company’s involvement in and stances on social problems such as workplace safety and benefits, community development, diversity, anti-bias issues, ethnic diversity in recruiting practices, and human rights.
By focusing on the employees’ welfare as a start, companies with varied viewpoints will improve investor outcomes, a diverse investing sector will better serve a diverse society, and a diverse workplace will be more enjoyable
In the governance factor, guidelines exist to make a business employ correct and open accounting practices. This guideline includes selecting executives with high integrity and diversity who will also be answerable to shareholders.
ESG investors could demand guarantees that businesses don’t choose board members and top executives who do not utilise political donations to get special treatment, have conflicts of interest, or don’t engage in criminal activity.
With a generation that cares about its values and philosophies, wealth and asset managers need to implement values-based investing choices to cater to a new generation of investors. This is necessary if they want to win market share and gain a competitive edge in this evolving industry.
To participate in sustainable investing, look specifically for ESG funds. Companies are providing investors with more information to consider investment options in light of sustainable investing, which is increasing in popularity. Using a mutual fund, stock, or ETF screener can help you search for investments that align with your values, morals, and objectives.