What is ESG Investing?

ESG, or Environmental, Social and (corporate) Governance investing is a strategy to diversify your portfolio more ethically, and are central to the investment mandates of most major global fund managers – and a key discussion point around company board rooms.

The ESG ethos is holding companies and they way they operate to a higher standard through a certain set of criteria. Thus, ESG investors are not solely concerned with a return on their investment, but more so with good corporate behaviour and the impact on the environments, stakeholders and the planet.

ESG investing strategies are far from new, with roots back as far as to the 1960’s. However, these strategies gained attention again in relation to the Covid-19 pandemic, when ESG conscious companies were proven less volatile than others in an unstable market.

But what companies can actually consider themselves ESG-worthy? Let’s look at some attributes commonly used as key measurements.

ESG criteria – A breakdown

To better understand the different components of common ESG criteria, we have provided a breakdown below.

Environmental: This pertains to the way companies are affecting the planet in their decision making. It includes aspect such as the use of renewable energies, recycling, their carbon footprint and their relationship with environmental regulatory bodies and organisations, and more.

Social: The social component is concerned with the company’s business relationships policies around people; staff, customers, suppliers and the wider community. It relates to issues around diversity in the workplace, salaries, compensation, promotions and employee safety.

Governance: Corporate leadership effectiveness and business ethics are among things involved in companies’ governance criteria. It relates to a company’s board member and shareholder communication, and the relationship between and within boards and shareholders.

A company does not have to fulfill every criterion in every category to be considered ESG conscious – it’s up to the investor to decide which criteria that weigh the heaviest.

Risks

If you are looking to jump on the ESG bandwagon and start investing in affiliate companies, it is important to be aware of the potential risks of an elaborate ESG investment strategy.

Firstly, there are no set global standards for ESG and how to evaluate a company’s performance in that realm. This creates inconsistencies in portfolios and funds across the world. So, before you invest, you want to do your due diligence and make sure your ESG funds align with your ESG values.

Secondly, even though the strategies around ESG are dating back a long time, there is still a lack of long-term data proving the resilience of this type of operation. People heavily reliant on financial returns in their investing strategy would likely find the ESG sector too unpredictable.

Finally, the so-called negative screening of undesirable practices, eliminating individual companies and entire industrial sectors  can limit the growth opportunities for your investment.

Benefits

Over the last few years, ESG investing has become increasingly popular as more investors are realising how it can present significant opportunities in rapidly growing areas such as clean and renewable energy and new technologies. For the savvy investors ESG strategies offers financial reward while the investment process itself reflect their values and beliefs.

There has been conversation about a ‘trade-off’ when it comes to ESG investing, meaning you have to sacrifice profit for morals. This is simply not true. Studies that have compared traditional funds to more sustainable ones have concluded that the total returns of sustainable mutual and exchange-traded funds were similar to those of traditional funds. In some cases, the ESG funds even outperformed conventional funds.

If you like to know more about ESG investment, get in touch with Domacom.

DomaCom ESG investment options

Are you looking to invest more ethically? ESG opportunities and investment campaigns frequently appear on the DomaCom platform, allowing you to invest in a range of assets that meet the general terms of an environmental and or social influence, such as;

  • Rural farmland
  • Renewable energy (solar, wind, battery and biofuels)
  • NDIS housing (National Disability Insurance Scheme)
  • Affordable housing (essential workers)

For specific investment details please refer to public investment campaigns on this page
Property Crowdfunding Investment Campaigns | DomaCom Ltd

And refer to the Product Disclosure Statement in relation to the DomaCom Fund
Product Disclosure Statement (PDS) | DomaCom Ltd