In recent years, there has been considerable expansion and acceptance of the concept of investing with a focus on sustainability. According to a report last year, more than 90% of global investors have assessed ESG issues in some way as part of their investment strategy. In addition, more than 60% of the national clientele not only wishes to benefit from the services of companies which have adopted sustainability in their routine operations, but is also willing to pay more for the same. This proportion continues to increase as new reports are published. So, it won’t be wrong to say that the numbers clearly reflect that ESG-focused companies offer an attractive option for long-term investors looking to build sustainable wealth.
Market demand and customer preferences
There is an increased demand for sustainable and ethical products/services. Consumers are gradually investment decisions based on ESG concerns. Companies that prioritize sustainability, social impact and ethical practices are more likely to attract customers and gain a competitive advantage. Investors are aware of this changing market and are actively seeking opportunities in companies that align with changing consumer preferences.
Social and governance components of ESG build investor confidence by underscoring a company’s adherence to moral business conduct and long-term sustainability, which in turn could improve financial numbers and performance overall company. The resilience built after such an integrated framework can provide investors with confidence and security in times of uncertainty.
Resilience in a downturn
The global economy is going through one of its most difficult times. As a result, investors are constantly looking for other options that can save their investments from the perils of a crisis if they don’t generate high returns. ESG-focused companies can build a positive relationship with external stakeholders and benefit from greater access to capital by focusing on mutually beneficial long-term value generation. Going forward, this long-term approach may, in turn, present a resilient opportunity for passive investors.
According to a report from MSCI, ESG stocks have outperformed, during the 2008 financial crisis, with a lesser decline in price value. On the contrary, several analyzes also indicated that ESG activities had little to do with stock prices at the time. However, given the current situation, there is no doubt that world leaders and institutions are gradually prioritizing the implementation of ESG. In fact, Bloomberg Professional Services expects global ESG assets to exceed $53 trillion by 2025.Be aligned with compliances
From building a standardized ESG framework for the top 1,000 listed companies to forming the ESG task force for the textile industry last month, the Indian government is working to make domestic sectors sustainable and attractive to investors.
There is no doubt that ESG considerations are becoming increasingly important for national authorities and regulatory entities. Companies that adopt effective and ESG-aligned business practices are more likely to comply with current and future requirements. As a result, it reduces legal and regulatory concerns for investors while providing assurance as to the long-term survival of the business.
While investing in ESG-focused companies/funds can help you preserve your investments, it is essential to understand that several other factors can affect the final value of an asset. The performance of any institution is based on a variety of factors, including changes in management, company policies, government compliances and the quality of the workforce; these aspects differ from sector to sector. Ergo, it is always advisable to call on a professional when it comes to evaluating figures that may have an impact on the figures of your assets.
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)