Is investing in social and environmental issues only relevant for impact investors? Or does ESG also play a role in long-term investment strategies? Investors concerned about sustainability should consider using an ESG approach to their portfolio management. By incorporating an ESG perspective into investments, they can ensure that their portfolios reflect their values. In this article, Curt Ranta explains in detail what these two terms mean and their impact on the world of real estate and the environment.
What is ESG?
ESG real estate investing is a way to invest in property using environmental, social, and governance (ESG) factors in mind. These factors are generally considered to be those things that affect people’s lives beyond just financial returns. ESG-focused investors look at these aspects of companies they’re considering buying shares in and try to find ways to make their investments more socially responsible.
How Does It Work?
There are several different types of ESG metrics. One type focuses on the company’s impact on society, while others focus on its impact on the environment. In general, ESG metrics fall under three categories:
- Social – Measures the company’s impact on communities.
- Environmental – Measures the company’s environmental impact.
- Governance – Measures the company’s corporate governance.
These three categories are what make up the pillars of what makes a company tick. Each category focuses on different aspects of a business. Below Curt has explained all three categories in detail. Let’s take a look:
1. Environmental
The environment is everything around us. The environment includes air quality, water pollution, climate change, and many others. In terms of business, environmental factors play a huge role in how successful a business is. If a business does not have a good track record in protecting the environment, it may lose customers.
2. Social
This category refers to how people feel about a business. A social company cares about its employees, local communities, and the world around them. Two types of companies fall under this category – those who care about their employees and those who do not. Companies that care about their employees tend to pay higher wages and provide better working conditions.
3. Governance
Governance encompasses how a company is run. How well a company runs is determined by how the board of directors governs the company. Boards govern by ensuring company policies are followed, setting goals and priorities, and overseeing the company’s financial health.
What is Impact Investing?
The term ‘impact investing refers to investments that seek to benefit society by addressing issues such as poverty, hunger, disease, climate change, and other problems. This type of investment differs from private equity investments, where only shareholders profit. A growing number of corporations also choose to make their profits by investing in businesses that they believe improve communities. These companies are often called socially responsible investors. There are two primary reasons why impact investing is becoming increasingly popular, points out Curt:
- First, it helps reduce the risk for both the investor and the company. Investors who invest in a company want to know that they are making a safe investment. By partnering with a company with a good track record, the investor knows that the company will likely continue to do well.
- Second, it gives investors a chance to invest in something they are passionate about. If an investor is passionate about saving the environment, they can invest in companies that work towards reducing pollution.
Impact investing is not just for big corporations either. Individuals can invest in small companies that have positive impacts. Investors can even invest in themselves. For example, if someone wants to start a business, they could invest in themselves and use the profits to fund their own business.
Why Are They Needed?
The world needs ESG (environmental, social, governance) and Impact investing. They go hand in hand. If we want to make sure our investments positively impact society, then we need to invest in companies that do good work while also making sure their business practices align with our values.
Both impacts investing and ESG investments play a vital role in our economy. Companies that focus on social responsibility and environmental sustainability create jobs, improve living conditions, and provide healthier food options. Consumers have the power to vote with their wallets, choosing where they spend their dollars each day. By supporting these types of businesses, we are helping them thrive and create sustainable economic growth.
Impact investing and sustainable investment are two sides of the same coin. They both seek to create a positive impact on society through investments. Although they differ in their approach, they can complement each other and provide mutual benefits to investors.
In recent years, companies have had to consider their impact on society and the environment. This has resulted in a shift towards responsible investing, which aims to ensure that investments are aligned with long-term goals.
Takeaway
In short, ESG and impact investing are powerful strategies that can help you achieve your goals while also making the world a better, more sustainable place. Curt Ranta suggests that, If you want to make sure that your investments positively affect society, you should invest in companies that do great things while also making sure their practices align with your values and that they are sustainable over time.