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The ABCs of ESG

Former Prime Minister Tony Blair once said: “Sometimes it is better to lose and do the right thing, than to win and do the wrong thing.”

As any business leader will tell you (if they’re being honest), moments come when doing the right thing is in direct conflict with what’s best for the bottom line. That’s where decision makers with integrity find their toughest challenges.

But today, there is at least one area where aligning a company’s civic responsibility with its fiscal responsibility is easy: clean energy.

As more than half the Fortune 100 has already discovered, renewable energies, like solar, are among the cleanest and cheapest available — while also being just what your employees, your community and the larger world want and need.

And this, in part, is why renewable energy is such a big part of ESG investing.

“Today, business leaders are no longer forced to choose between doing what’s right and doing what’s fiscally sound.”

A relatively new term, “ESG investing” is a socially responsible form of investing that prioritizes financial returns alongside a company’s impact on its employees, stakeholders and the environment. ESG stands for “environmental, social and governance,” which are the three broad criteria by which these investments are graded.

In the simplest terms: If a stock has a high ESG score, you can feel pretty good about investing in it. Even better: The evidence pouring in shows that these stocks are really strong market performers, as well.

Some facts to consider, according to a recent piece from Robinhood:

• 10X: Last year, investors contributed $51B to sustainable funds, compared to less than $5B only five years ago.
• $285B: How much ESG funds grew last year — nearly double their 2019 value.
• 90% of Millennial investors say they believe strongly in sustainable investing.

It’s not just individual investors who are getting on board. Institutional investors and financial pundits are seeing the opportunity surrounding these clean energy investments as well. Consider:

• A recent report from McKinsey shows that companies that invest in sustainable green energy practices, with high ESG scores, see increased profit and growth opportunities.
• Says Thomas Gottstein, CEO of Credit Suisse: “There is no contradiction of sustainable investments and sustainable returns, quite the opposite actually. In many cases, sustainable investments are actually higher returning than non-sustainable investments.”
• Says Audrey Choi, CEO of Morgan Stanley’s Institute for Sustainable Investing: “Sustainable funds’ strong risk and return performance during an exceptionally turbulent year further erodes the persistent misconception that sustainable investing requires a performance sacrifice.”
• And says Larry Fink, CEO of BlackRock in his 2021 annual letter to CEOs: “We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.”

Due to evolving business practices, advances in technology and consistent demand from investors and citizens worldwide, business leaders are no longer forced to choose between doing what’s right and doing what’s fiscally sound. Today, an investment in your environmental practices is an investment in your business. And that’s a boon for everyone.