Know the Reasons Why ESG Investing is Interesting

Know the Reasons Why ESG Investing is Interesting

ESG investments did better than most when most of the stock prices fell down during the early phase of COVID-19. In the following article, we will find out the reasons why ESG investing is interesting.

Understanding ESG

ESG investing which we also know as “socially responsible investing” and/ or “impact investing” is the type of investing which prioritizes factors. They are factors that are optimal for environment, society and governance.

We see ESG investing as a method of investing in a sustainable way. It means that when you make an investment you consider factors of environment and human wellbeing, as well as the economy. The main idea behind ESG investing is that the environment and society widely influence the financial performance of companies.

As we have mentioned before, this type of investing is not a new concept. Halal investment which is based on Shariah law largely influenced the concept of impact investing. Muslims are the founders of investments that adhere to Sharia rules, which included prohibitions on weapons, adultery, gambling and etc.

Interesting Facts About ESG

  • It is no longer small area of investing

It is no longer an area of investing that only environmentalists want to invest in. The idea of impact investing is quite mainstream. From SME companies to giant organizations such as the United Nations are on board.

  • There are more chances of being an impact investor than ever before

It is becoming more obvious that impact investments do not have to be restricted to economic and commercial operations where the social benefit is obvious and direct.

In a recent article, UBS’s Mark Haefele advocates for a broader definition of impact investment. Impact investments can also be made in activities that do not have the conventional humanitarian implications yet have a huge long-term beneficial impact.

55% of impact investments provide market-competitive returns

More and more people are into impact investing as they perform well. Sometimes they perform even better than conventional assets.

According to a survey by the Global Impact Investing Network (GIIN) and JPMorgan, 55% of impact investing opportunities result in competitive market-rate returns. Another Moneyfacts analysis indicated that ethical funds beat their mainstream peers in 13 out of 20 situations. It is when compared to their mainstream peers over four different time frames and in five distinct categories or sets of funds.

Last year socially responsible funds outperformed their traditional counterparts achieving an average growth rate of 16.8 % vs 15.2 % for the conventional non fund. Over three years, the average ESG fund (30.4 %) outperformed the average non-ESG fund (29.1 %), but it’s over five years that ESG funds truly shine, with an average return of 76.1 % compared to a non-ESG fund return of 64.1 %.

Furthermore, according to Global Impact Investing Network, in April 2019, the scope of impact investing was worth about £502 billion.

Sustainability is less expensive for long-term investments

ESG stocks have become better value for long-term investors. They are investors who are looking to grow their sustainable investing exposure as a result of the recent market pullback in most asset prices. To put it another way, it might be a once-in-a-lifetime opportunity to add some high-quality ESG firms to a portfolio.

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