The last couple of months has been tough. That is a statement shared by the majority of the people on this planet. And that is a statement shared by countries with the biggest wealth and large economies. Though it looks bleak given the current escalations between major powers and the increasing difficulty to stay at a standard level of living, technology, such as social media and the internet, has shown us that we all share more common ground than the difference we have. Quite frankly the difference we have is mostly done by politicians but this is not the story of this article.
The common grounds that we share are very simple and fundamental. And it is highly possible the list can get bigger but these are items we share that it is hard to see anyone disagreeing with truthfully.
1. Safety of living. Just the mere fact to live your life without the worry of harassment from the government or other disgruntled individuals. This can be provided by a willing government.
2. Fair opportunities for improving your life. This can be provided by a healthy economy and laws to protect property and rights. It is impossible to have a life that is 100% fair but anything that is closest to 100% is absolutely wanted by everyone. This can be provided by fair law and the power to enforce it.
3. Ample supply of resources to live. Let’s face it, resources are the main reason countries have conflict, outside of disgruntled politicians. Resources such as food, raw materials, and nutritious soil. These are heavily provided by the land size and geographical location of the nation.
If you see the common theme among those three items, then the importance of ESG investing will be clear. The impact of ESG on the three items are (in accordance with their order):
1. ESG forces investors and the general public to be aware of current events that are happening currently beyond the financial statements. This makes people informed, however, the current battle is “mostly fake” vs “kind of true”. The point is, an informed and educated public is harder to manipulate. This fits into the “Social” of the ESG.
2. “The fair laws” are only good as the people who came up with them and “power to enforce it” is largely defined by how much funding is being flown to the enforcers and how it is spent. This requires oversight to manage the “fairness” between the decision-makers. This fits into the “Governance” of the ESG.
3. At this point, it is pretty clear that the resources are largely provided by nature and our planet. This is covered by the “E” of the ESG. The environmental impact reaches every aspect of people’s lives; from the shelter, and mining to an environment that is ripe for the growth of food stock and plant life. Not to mention how delicate the connections between different ecological systems are.
These items of the social aspect all require capital and funding to have a meaningful impact. Companies are still working to have the uniform reporting of their ESG agenda and investor are still considering how best to fit ESG into valuations. This is not a recommendation to invest carelessly in anything that has ESG in its IPS but to think twice about what impact you care most about before putting your money into it. One drop is minuscule addition to the ocean but it is still addition.
