Companies must embrace both principle and profit as Asia and the Pacific recover from the pandemic. Responsible, ethical, and impact investing are all terms used to describe it. Investing in the pursuit of both financial return and socially desirable outcomes, or at the very least avoiding undesirable outcomes, has gained a lot of traction in the last decade or so, whatever name it goes by. It is expected to become even more popular in the COVID-19 era and its aftermath.
To use its most technical moniker, environmental, social, and governance (ESG) investing is gaining traction among governments and businesses, owing in part to a growing global recognition of the need to protect the environment—particularly by mitigating and adapting to climate change—through socially responsible and accountable business activities.
The emergence of ESG also reflects escalating debates about modern capitalism, which has been accused of prioritizing the interests of stakeholders (consumers, employees, and communities) over the interests of shareholders. To assist with such investments, global institutions such as MSCI and Thompson Reuters issue indexes. Reports on ESG are being published by large firms not just as a financial record, but also as a public relations tool. To fulfill the rising market need for firm-level diagnosis, globally renowned consulting companies are developing or extending their ESG channels.
Due to collapsing demand, employees’ inability to come to work due to lockdowns or illness, and supply chain disruption, COVID-19 has exposed numerous public and private enterprises to unprecedented dangers. Although the financial market impact was controlled in March thanks to central banks’ rapid and large interventions in treasury, mortgage, municipal, and even high-yield corporate bond markets, this has prompted a global stock market slump.
Traditional investments have fared worse than ESG funds. According to Bloomberg, the typical ESG fund has lost approximately half of its value this year, compared to the S&P 500. This outperformance has been aided by the drop in oil prices as a result of unclear consumption and demand predictions.
ESG funds have limited exposure to fossil-fuel industries like oil and gas, as well as energy-intensive industries like airlines and maritime transport, by their very nature.
This funding also put additional money towards renewable energy, telecommuting, distance learning, and telemedicine. They also focus on organizations that have a high level of transparency and a socially conscious approach to their employees and communities, connecting with the need for stronger social protection to safeguard people and society from the pandemic’s worst effects.
Many businesses are dealing with the pandemic’s aftermath by reducing employment losses and paying their suppliers—mostly small and medium-sized businesses—with their own cash. Not every business is so forward-thinking. Some businesses have free cash flow but don’t use it to help their employees and suppliers.
Ethical investing is already a big deal. Smart businesses will seize the opportunity to add more ethical investing options than are available from their current providers, who are missing out on an emerging trend.
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