Alright, let’s talk money. With ethical money, mind you, not just any form
of money. Oh yes, I’m speaking of ESG investment, financial investment
where you can both make money and save the world. It’s like if Captain
Planet had an investment portfolio of various industries. But don’t be
overwhelmed by the terms you just read. ESG stands for Environmental,
Social, and Governance, and it’s a style of investing where you make your
dollars do double duty: To earn returns while being both environmentally
friendly and socially responsible, one needs to have his/her organizations
founded upon:
Well, let’s start with what ESG investing is, why ESG investing is the future
(as well as the now), and, best of all, how to figure out your environmental
and social impact RoI without a degree in “Saving the Planetology.”
What Even Is ESG Investing?
If you would visualize your money, it’s kind of like a superhero; it has
power. Rather than stewing in what might be an unexciting regular share or
mutual fund investment, your money can wager on climate change
solutions, gender equality, or more say in who controls corporations. When
you invest in ESG, you’re backing companies that care about things like:
Environmental: These companies are all focused on lowering carbon
emissions, using clean energy, or preventing the oceans from becoming the
world’s largest oceans of plastic waste. Let it be Tesla or any company that
recycles more than your exaggerated neighbor.
Social: This includes human rights and equality, labor relations, diversity,
and inclusion. You know, companies that aren’t keeping their employees up
to become extras in some dystopian film they’re so fond of shooting.
Governance: Briefly, you can say that internal checks that guarantee that
the CEOs are not merely spinning the wheels of your money, like Monopoly
money. Transparency, accountability, and diversity on the board—this is
the adulting part of ESG.
Why Is This a Thing?
Oh no wait because—again, major plot twist—climate change exists and
now people give a damn about others. Shocking, right? Said generations are
beginning to realize that if the world is on fire or a society fails, that might
not be very good for a gram. But also, it’s because companies that are bad at
ESG are also bad in every other aspect that you can imagine.
And now you are like, ‘Oh, I see, but how do I know I am impacting as I
invest in these ESG companies?’ Glad you asked.
Calculating Environmental Impact Returns: Saving Earth Points
Starting is easy; let’s begin with the first variable, the “E” in ESG. If you’re
investing in companies that are working to reduce their carbon emissions
or using renewable energy, you’re accumulating what could be described as
‘Earth Points’. Well, these are not like Starbucks points but then they are as
trendy as you can get. Here’s how to figure out if your portfolio is green
enough to make Captain Planet proud:
Check Carbon Footprints: The majority of the ESG funds will report figures
pertaining to carbon injured per dollar invested. Some organizations may
go to the extent of saying, “We have cut our carbon footprint by X metric
tons.” This one should be viewed as your carbon accountability. That means
there are fewer polar bears crying right at the Arctic if you are not spewing
a lot of CO2. You should find this data in the ESG reports from this
company.
Example: As an example, you bought shares in a company that has a solar
energy power of one thousand dollars and offsets 10 tons of CO2 emissions
per year. This means you have effectively cancelled out your driving
emissions for an entire year of your life! Get a big thumbs up from your
future self with an efficient and environmentally friendly electric vehicle.
Water Usage: The other thing that must be considered is the amount of
water that a certain company conserves. Extra credit if they reuse water or
use the least amount of energy in the production process. The fewer gallons
they drink, the better the credit on the scale of environmental friendliness
that goes to you.
Renewable Energy: If a firm operates solely with solar or wind, you’re
donating to a business that isn’t paying lip service. On the other hand,
tallying up the amount of clean energy they are using will give you the
environmental return on investment.
Avoiding Greenwashing: This is crucial. Many companies just put a sticker
next to the product and say they are an environmentally friendly company.
Be skeptical of buzzwords. Ensure that they are backing it up by investing
their cash where their mouth is.
Calculating social impact returns: You’re Basically a Superhero
Social impact is the ‘feel good’ part of your returns. It’s not just about
getting paid; it’s about doing the right thing and making our planet a better
place. Here’s how to calculate your Good Vibes ROI:
Diversity & Inclusion: A lot of organizations will tell you the number of
women and people of color that are on their board. Every one percent that
you spend, you should congratulate yourself; you are helping equality.
People are saying, ‘I want my money invested in a world where the CEO is
not a repeated person on TV.’
Example: You funded Company A, and the latter has a board of directors in
which women make up 50% and people of color – 30%. You just made sure
that the old boys’ network was buried here today.
Employee Treatment: Companies should safeguard their employees by
offering good employee perks or remuneration, ruling out favors, and
decent treatment. It’s like you are paying for improvements on the quality
of lives of working people from around the globe.
Community Impact: They invest back into communities, construct more
schools, or even give to charity as some of them do. If your investment
helps a company provide clean drinking water to a village, then happy days,
right? You’ve just signed up to be part of the solution. Take that, evil
corporations.
The Governance Bit: Adulting, But Make It Cool
In the governance section, what you have to do is make sure that a company
isn’t run by people who believe that ‘transparency’ means writing with pens
that are invisible to the naked eye. In my opinion, you do not want a
company that is mired in making profits but a company that will bear
responsibility. Here’s how to calculate if a company’s leadership is chill
enough to invest in:
Board Diversity: The more diverse, the better. This proves that they aren’t
regressive, stuck in the 1950s kind of environment where they make
decisions with a group of people from their country club.
Ethical Practices: It is sheer dangerous should the company ever be in the
news frequently over cases of unlawful business conduct frequently getting
dragged to court over legal cases. Just so you won’t find your money stuck
in a scandal quicker than you can say, “sstock crash.”
CEO-to-Worker Pay Ratio: Determine whether the top-paid employee is the
CEO and whether he earns 1000x more than a base employee. If they are,
that’s sketchy. You want one that appreciates all its workers and authors,
not just the CEOs.
But How Do You Actually Track This Stuff?
At First Look, One Is Bound to Wonder, ‘But How Do You Actually Keep
Track of This Stuff?’ Due to the Above-Discussed Largesse to Consumers.
So, now that you understand what ESG is, let’s move deeper into it. Now,
how do you keep score? Well, there are ESG ratings! You can imagine it like
Yelp for companies, but there are no low-effort and dissatisfied customer
reviews from that one Karen we all know and love to hate. MSCI,
Sustainalytics, and other third parties analyze the extent of a company’s
efforts towards sustainability and issue scores. A higher number is an
indication of better ESG performance, and that will be good for you.
Further, most of the mutual funds or ETFs available in the market are
categorized especially for ESG investing. Instead, they reduce uncertainty
by grouping those companies that have complied with policies on ESG
factors. Just make sure to not take the label at face value but look at what
the fund is actually doing.
Final Thoughts: The Power of Your Dollar
Investing in ESG isn’t just a feel-good move. It’s about backing companies
that are ready for the future while making sure we actually have a future. By
calculating your environmental and social impact returns, you’re not just
focusing on profits—you’re focusing on a better world. And let’s be real,
saving the planet while growing your wealth is the ultimate glow-up.
So, the next time someone asks about your investments, you can hit them
with this: “Oh, I’m just saving the Earth and making money, NBD.”