ESG Investment — An initial look
Written by: Candice Stewart
We live and operate in a digital world where most, if not all, of our tasks are automated or have the ability of automation, transactions can be done with less wait time more people are buying into the idea of putting the analogue way of life to rest.
Within this type of world, digital currency is a common thread or as common as the ones and zeros that manipulate all things digital. We hear about crypto currencies, tokens and block chains as part of everyday discussions among people, within governments and central banks of countries. We also tend to hear about their relation to those key phrases as it relates to Environmental, Social and Governance (ESG) factors of business operations. These digital currencies are now general buzz-worthy themes that were once shared within exclusive financial-based groups — what are they? How do we define them, and how do we fit in?
The conceptualization of cryptocurrencies, tokens and blockchains
Essentially, these three use digital currencies that aren’t managed by any bank or government.
Cryptocurrency: According to Kate Ashford, Forbes Contributor, cryptocurrency is a medium of exchange that is digital, encrypted and decentralized. There is no central authority that manages and maintains the value of a crypto currency. Instead, the management is done through a broad distribution across its users on the internet.
Coin: Business Insider defines Coins as the digital version of money held in hand. They are meant to be used directly for transactions. The help with paying for goods and services either in the digital world or in everyday face-to-face transactions
Blockchain: Forbes Advisor call blockchains an open, distributed ledgers that record the transactions of digital currencies in code. Essentially, blockchains are like little cheque books distributed across computers worldwide. She further states that transactions are recorded in ‘blocks’ and linked together on a ‘chain’ of previous cryptocurrency transactions.
Token: “Tokens are used with decentralized apps and built on top of an existing blockchain”. Crypto-tokens are a representation of assets. The tokens can be held for value, traded, or staked to earn interest.
So, when you think about it, the discussion about cryptocurrencies, coins, blockchains and tokens are the everyday general bank lingo and functions — except, they are all no digital and not physically held in hand or executed by hand.
How does ESG Investing sync into all of this?
Kenneth Squire of CNBC identifies ESG Investing as investors using a socially conscious set of standards for a company’s operations to screen potential investments. ESG has 3 primary criteria:
- Environmental criteria consider how a company performs as a steward of nature.
- Social criteria examine how it manages relationships with employees, suppliers, customers and communities.
- Governance deals with a company’s leadership, board composition, alignment with stakeholders and stakeholder rights.
ESG Investors therefore utilise the crypto world to facilitate and make investment in assets that promote environmental protection, people performance around justice and equity and social impact, issues.
In other words, ESG investing is a strategy used to put your funds to work with companies that strive to make the world a better place and see business as a source for good. It relies on independent ratings, that helps investors and asset managers, assess a company’s behaviours and policies as it relates to environmental performance, social impact and good governance. The argument of wether the data being relied on is reliable or accurate is questionable, but we will safe that for another blog.
Squire further states that the benefits of ESG Investing cannot be overstated. As it has dramatically changed the focus of investors and executives to look beyond the returns and profits. ESG investing has led to more diversity on corporate boards and allowed retail investors the opportunity to align their investments with their values.
NASDAQ contributor, Betsy Atkins, says that ESG issues ought to be a top priority for corporate management and boards. She shares that in the rapidly growing business climate, attention to ESG issues is becoming critical to long-term competitive success.
The advantages of proactively addressing issues in ESG transcend appeasing institutional shareholders and creating a feel-good public relations story. Robust ESG programmes can open up access to large pools of capital, build a stronger corporate brand and promote sustainable and long-term growth benefiting companies and investors.
How does ESG benefit businesses? Here are three ways:
1. Strong ESG programs can increase stock liquidity.
2. ESG initiatives can unlock competitive value.
3. Companies that espouse strong ESG values tend to attract and retain the best talent.
Source links:
https://www.forbes.com/advisor/investing/what-is-cryptocurrency/
https://www.cnbc.com/2021/11/06/the-evolution-of-esg-investing-heres-whats-next.html
https://www.nasdaq.com/articles/strong-esg-practices-can-benefit-companies-and-investors-2019-03-13
