Considering sustainability measures when assessing a company can not only align investments to your values and encourage companies to make positive change, it can also identify risks to the longevity and strength of a company’s business model.
Along with considering their environmental impact, sustainable investing also incorporates a company’s societal impact and how it is governed.
A company that has a detrimental impact on its environment is more likely to have an unsustainable business model. The same goes for one that has a negative impact on society, or that has poor governance practices.
Assessing a company’s sustainability can help align investments to an investor’s set of values. In addition, it can help drive positive change by signalling to companies what areas stakeholders see as important, and where certain issues may need to be addressed.
Furthermore, it’s important for investors to be aware that a company with an unsustainable business model presents additional risks over the long-term.
One of the most common ways of incorporating sustainability into an investment process is via the integration of environmental, social and governance factors. This is termed ‘ESG’ investing.
ESG investing is more than simply screening and excluding companies engaged in certain business areas, such as gambling, fossil fuels or tobacco.
For me, the ethical aspect of my investment is really important. I decide what to invest in, but my adviser gives me recommendations along the way and answers any questions that I might have.” – Craigs Investment Partners client
It includes a range of non-financial measures to help identify sustainable and non-sustainable businesses, and those taking active steps to improve the sustainability of their businesses.
Socially responsible investing is here to stay
Socially responsible investing has gained in prominence in recent years and is anticipated to become increasingly important in the years ahead. Covid-19 has acted as a further boost, with more and more investors recognising the importance of thinking about the bigger picture, rather than only pursuing returns.
Gone are the days where the only focus for a company was on maximising shareholder value – a company must now be aware of the impacts of its activities on all stakeholders, be they shareholders, customers, employees, suppliers, or society at large.
Companies must maintain their social license to operate, and controversies have real effects on company valuations.
To help clients invest sustainably, Craigs Investment Partners has developed sustainability scores.
“These scores provide valuable information for socially responsible investors, weighing up the key issues and highlighting factors for investors to consider in an easy to understand manner,” explains Craigs research analyst Roy Davidson.
Vanessa Stevens, Craigs quantitative analyst adds, “as an example, when considering a company’s emissions, Craigs looks at how emissions intensive a company’s activities are, what they are doing to lower their footprint, if they have measurable reduction targets in place, and whether the company is aware of the risks and opportunities climate change may bring.”
Craigs Tauranga Branch
Craigs Rotorua Branch
This information is of a general nature only and does not constitute regulated financial advice. It does not take into account your particular financial situation, objectives, goals, or risk tolerance. Investments are subject to risk and are not guaranteed. Past returns are no guarantee of future performance and returns can go down as well as up. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser. Craigs Investment Partners Limited is a NZX Participant Firm. For more information on Craigs financial advice services please see craigsip.com/terms-and-conditions.