Why ESG is the smartest investment you can make

There's a lot of talk about sustainability these days, whether it's about how to sort your trash or what clothes to buy. What does that mean for your investment, though? How important is sustainability, then? Especially when it comes to your profits. Let's talk about how and why.

The Corporate Sustainability Reporting Directive (CSRD) is the first thing we need to look at to understand sustainability in business or investments. Neste.com describes it as: “This is a mandatory non-financial reporting that will make business more accountable, transparent and compatible. With the aim of boosting sustainability and the circular economy.” It sounds very complicated, but in a nutshell, it means that the business must report on how its actions affect the environment. But how do they report this?

A way to measure sustainability and impact is by ESG. This stands for environmental, social and governance. But what is this? The corporate governanceinstitute.com explains it like this. It's a framework used to evaluate a company sustainability and ethical impact. The ESG factors are: 

• Environmental: This factor evaluates the company's impact on the environment. It considers carbon emissions, waste management, pollution, and climate change.
• Social: This factor evaluates a company's impact on society. It considers labour practises, human rights, community involvement, diversity, and customer satisfaction.
• Governance: This factor evaluates the company's management and decision-making processes. It considers board composition, executive pay, shareholder rights, and transparency.

The European Union decided to make a law that makes reporting your efforts towards sustainability as a company mandatory. You could structure that report by rating different parts of your company in three different groups. What relevance does this have to your investments, though?

Just now, you read that the government is putting a lot of pressure on businesses to be more environmentally friendly. Companies that violate the law or fail to contribute to sustainability may also be subject to fines under the new legislation. Also, it is never good for a business to pay millions of fines. Along with that important part, consumers think it's very important for a company to contribute to sustainability. Ienyc.edu (New York college) tells us that 76% of consumers would stop supporting companies that fail to uphold ESG standards. And no customers means no sales, no profit and bad for investments. But what else is important besides pressure from the government and consumers?

According to an article on Ienyc.edu it can also help companies achieve cost savings through greater efficiency, attract more talent and enjoy greater employee retention. In an article published by Abnamro.com it states that compared to traditional companies, sustainable ones are much better prepared for the future. That this is reflected in the investment returns that these companies generate, and in the responsible way they treat the world. They have a more long-term focus. Besides that, forbes.com states that research shows sustainability-focused businesses often gain a competitive edge in the marketplace. As stated earlier, consumers more likely choose products and services from companies that demonstrate sustainable practices.

Let's take a look at ourselves now that we know what, how, and why. Sustainability is important, and a company should have a well-kept ESG report if it wants to be successful now and in the future. It's interesting to invest in sustainable businesses because of their increased chances of survival, sales, and reputation. Putting money into sustainable businesses is an investment in both your own and future generations' futures.

We pick investment partners that offer a stable portfolio of investments in companies with good ESG ratings because we think this will help in the long run. This is in line with the mission of our business: investing in your future means investing in the growth of your capital.