At this point I’m sure most of us have heard about ESG. Here’s one definition:
ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities.
Ok. It’s true that many investors find it reassuring that companies taking some responsibility for their environmental impacts, their staff and diversity on their boards are showing evidence they outperform (financially) non ESG companies.
But does this definition with its exclusive focus on risk, return and growth explain the dramatic rise in the popularity of ESG investing?
Talk to any investment advisor and they’ll tell you the main driver of individual investor’s interest in ESG companies is they want their investment funds to be doing good.
So here’s another definition of ESG (from Forbes of all places):
Environmental, social and governance (ESG) investing is a strategy you can use to put your money to work with companies that strive to make the world a better place.
However, take a moment and reflect on what an enormous shift this represents. Up until only a few years ago investors focused on one thing and one thing only – financial return. What other reason was there to invest if not to make more money?
It turns out that was only one way to view investing. Professor Tim Jackson, author of Prosperity Without Growth: “Investment is the vehicle through which we build, protect and maintain the assets on which tomorrow’s prosperity depends.”
And could our view on what prosperity means also be shifting? Could we be awakening to something akin to the prosperity Tim Jackson describes – “Prosperity goes beyond material wealth. It has social and psychological aims. Family, friendship, society. Participating in the life of that society. And this too requires investment. Investment for example in places. Places where we can reconnect. Shared spaces. Places of joy and celebration. Places of tranquility and contemplation. Sites of the cultivation of a common citizenship.”
There’s no question that a profound shift in humanity’s consciousness is going to be required to minimise climate change and avoid a climate catastrophe. Maybe just maybe we are witnessing the start of that shift.
In conclusion, I would love to hear other people’s perspective on this.
Purpose Capital is an impact investment fund whose mission is to drive social and environmental change. If you have an investable opportunity that will create systematic change and deliver intentional social and/or environmental impact click the button below to get in touch.