Suppose you are already a well-established investor or plan to start soon. In that case, you must be aware of the concept of socially responsible investing (SRI) because it is the way to promote a message of humanity and ethics. After all, it is our social responsibility to uplift those industries and enterprises that work towards the sustainable development of society and oppose the organizations that work otherwise. As a result, socially responsible investors avoid investing in daily market companies that produce or promote addictive substances and propagate unethical practices.
The availability of trading apps and growing awareness of investment benefits are the prime reasons why more and more people are joining the bandwagon, but doing this with a sense of responsibility makes all the difference. ESG investment in the share market online is one such investment opportunity that helps investors to assess the trade performance beyond the parameters of ROI. To enlist an individual asset or a company under the category of ESG compliance, they are judged under the following criteria:
Environmental: Whether the focus is aimed towards the conservation of the environment or not by abolishing practices that increase waste, ruin natural resources, maximize energy footprints, etc.
Social: How well the organization follows the rules regarding their laborers’ safety standards, how far their community outreach is, and how much resources are utilized for building equal employment opportunities and quality of life and products.
Governance: If the organization pays enough attention to standard business practices, maintains clear transparency with employees and customers, and strikes a balance between executive compensation and employee pay.
Despite all these bars being clear, ESG funds outperform conventional funds in most parts of the world by yielding high volume profits. In India, they grew remarkably to 4.7 times in three years from 2019 to 2022. Investors are compelled to put their money into ESG because of its long-term stability, social impact, and positive development of societal standards.
ESG investment plays a vital role in propagating the concept of conscious capitalism because it allows individual investors to contribute to building a safe and sustainable economy. Suppose socially conscious investors are in the majority. In that case, they will influence and pressure corporations to modify their business practices to encourage a brighter and positive future.
Are ESG and SCI the same?
Although used interchangeably quite often, these two terms overlap to a certain extent, but there is a minor difference between them. In contrast, SCI focuses more on pointing out the negative issues which do not comply with the moral ethics of the investor. In that case, the investor will be open to divesting, even if the organization is soaring high on the profit scale with terrific stock results.
On the other hand, with ESG, issues are unrestricted so prominently to let the investors make quick decisions. In this case, since the decisions are made according to the rating, there is no rule that investors cannot pick companies with a low rating as long as they promise to implement changes and improvements. This flexibility allows investors to provide a benefit of doubt to potentially promising organizations without compromising on moral grounds.
There are different forms of ESG investment. The prime advantage is that investors don’t have to compromise on social and moral grounds to weigh in the profit margin. Research has shown that investments with high environmental, social, and governance ratings have simultaneously proved lucrative and stable with frequent breakouts.