It’s normal for anyone new to ESG investing to have uncertainties about what ESG integration is and how it’s carried out. You may not realize it, but you are probably already informally integrating integration techniques.
An ESG integration systematically and explicitly includes ESG issues in an investment analysis and decision-making. It is the practice of including material environmental, social, and governance information in an investment process to boost the financial outcome of an investment portfolio in the long term.
If you’ve been wondering what on earth is ESG integration, here’s all you need to get the concept.
What is Environmental, Social, and Governance Integration?
Some individuals wrongly assume that ESG is only concerned with the environmental sustainability of an organization. ESG is concerned with the factors that are traditionally unreported yet are essential corporate values. So, what on earth is ESG integration?
ESG integration focuses on using the financial material ESG data as a tool for a new lens to recognize previously unpriced opportunities and risks. ESG integration supports the analysis of these corporate decisions affecting operational efficiency and future direction. The integration equally increases risk-adjusted returns with long-term viability.
Material ESG considerations vary based on the industry/sector, market trends, client objective, and investment style.
What On Earth Is ESG Integration Useful For?
Most people view ESG integration’s benefits as building a positive brand image, satisfying institutional shareholders, and attracting investors, but it goes beyond that. If you’ve been wondering what on earth is ESG integration useful for, here are some highlights
Increases Stock Liquidity – Many ethical investors inject large sums of cash into companies with a strong ESG integration. They are seeding into companies that are proactive in operating and governing sustainably and ethically.
Increases competitive value – This is because ESG integration makes it easier for a business to adapt to the changing environmental, social, and economic conditions. Integration also illuminates strategic opportunity, which helps companies to overcome their competitive obstacles.
Committed ethical shareholders – ESG investors make investment decisions based on ethical values. They are more concerned with what will happen in a decade than the next quarter. Ethical investors often also collaborate with companies they invest in to improve them; they are more concerned with creating long-term value rather than a short-term shift in stock.
More substantial Analysis: ESG integration in investment research and decision processes leads to investment plans that are more informed and better management of resources. The data also provides an early warning system by highlighting risks not reflected in asset values, allowing for even more thorough evaluations and analyses.
Ability to retain talent – Research has shown that companies with ESG integration can attract and retain loyal, passionate employees who feel valued. Committed employees often create an intangible goodwill that boosts employee productivity and overtime reinforces a company’s brand.
Integrate ESG Into Your Investment Decision Making
The ESG landscape is evershifting with evolving regulations, legislations, and priorities. It’s essential that you integrate an ESG program and ensure that the strategies are embedded into your corporate structure. As an investor, create an integrated framework that you can use to access SG opportunities and Risk. As a company, you want to educate your workforce on the significance of embedding ESG across your platforms.