Among a collection of more than 2,000 studies, nearly 70% found a positive correlation between ROI and enterprises that engage in sustainability practices. 

These enterprises are identified by their high ‘ESG’ score — a measure of how well they fulfill the Environmental, Social, and Governance expectations of their investors, most of whom, today, regard the score very highly. 

And you should too.  

Here’s why. 

What is ESG investing? 

Sustainability isn’t new. It has always been in fashion.  

However, what was defined as sustainable was limited to only a handful of factors, its scope being quite narrow. These factors were also disparate and never referred to as a collective.  

Today, the number of factors has ballooned, making sustainability’s scope vast and various. But, owing to our ever-increasing power of computation, we have also been able to refer to and study those extensive factors as members of a single collective — ESG. 

ESG factors or criteria embody a large set of practices that ensure that the environmental, social, and governance policies of an enterprise are aligned with the ESG expectations of its market. ESG investing is simply the practice of investing in enterprises that fulfill those expectations. We call these enterprises ESG-compliant.  

Unsurprisingly, given how highly investors value ESG compliance, ESG advisory has taken off lately. The most successful ESG advisory services collect and analyze data on anywhere from 10 to 100 ESG factors to arrive at a rigorously tested, highly reliable score.  

The more sustainable the practices of an enterprise, the more ESG-compliant they are deemed, and hence, the higher their ESG score. As a result, more modern investors are inclined to invest in them.  

Here’s what a few of those practices look like. 

Environmental 

  • Climate change policies  
  • Reducing greenhouse emissions 
  • Water conversion  
  • Waste disposal policies  
  • Use of green, renewable energy to power technology and infrastructure  
  • Recycling 

Social 

  • Diversity and inclusion 
  • Fair wages 
  • Equal wages 
  • Employee development practices  
  • Appropriate ethics and culture  
  • Safety and community  

Governance 

  • Ethical shareholder principles  
  • Fair shareholder compensation  
  • Diversity and inclusion in management  
  • Transparency 
  • Minimal regulatory intervention  
  • Whistleblower schemes 

Okay, so, we have learned that ESG scores and ROI go hand in hand.  

But is this merely a correlation, or is there a cause, an explanation for the returns? What makes ESG investing so lucrative? 

The benefits of ESG investing  

More than 70% of top executives believe that ESG ought to be a priority. However, it’s hard to say whether their belief is genuine or are they simply pandering to investors.  

Still, if you ask both investors and executives, most should provide you with identical reasons for investing in ESG.   

Here they are. 

ESG boosts productivity 

By ensuring the happiness and satisfaction of its employees, ESG-compliant enterprises are primed for higher productivity.  

Contrary to popular belief, a shocking number of studies have discovered that tireless working is counterproductive, since it makes employees unhealthy, causing them to take more leaves or be disenchanted of work.  

ESG-compliant enterprises instead prioritize employee welfare, workplace culture, and safety. They produce a sense of community and purpose.  

In this manner, they create an environment that boosts physical and mental health, and hence the will to work. Such an enterprise is optimized for efficiency and productivity.   

EEG improves risk management 

Risk management ranks among the highest on investor priorities. Therefore, it’s no surprise that investors love ESG since ESG consulting works wonders for risk management.  

Essentially, what ESG consulting provides is an assessment of all the factors that impact an enterprise. This knowledge is coupled with data analytics to identify those factors that are most likely to have a negative or positive impact.  

Once the negative factors are identified, the enterprise simply readjusts its strategy to neutralize them.  

In this manner, dynamic, constantly evolving ESG-compliant enterprises always remain a step ahead. Investing in them entails far less risk compared to static enterprises that don’t keep up with the times.  

Modern customers are conscious customers 

Most negative factors find their roots in customer choices.  

With the rise of the internet, information became cheap — virtually free, in fact. Customers have never been more aware of the consequences of their choices.  

And hence, customers are extremely wary of buying products or services or even just being associated with a brand that violates sustainability standards — a value in which they increasingly believe.  

Enterprises that are reluctant to embrace ESG will be sooner or later abandoned by their customers. Their stock price will plummet and they will prove to be a far riskier investment than enterprises that will adopt ESG in their strategy. These enterprises will be celebrated by their customers.   

Their stock price, instead, would soar.  

ESG is more cost-effective 

ESG stretches revenue from both sides: it boosts productivity and is more cost-effective.  

This is because besides optimizing the workplace environment for productivity, better risk management leads to fewer unnecessary losses.  

When we say that ESG-compliant enterprises readjust their strategy to neutralize negative factors, what we mean is that they reallocate their resources where they will be more effective.  

Why waste resources on projects that offer less ROI? Instead, better risk management enables enterprises to outline those projects wherein they can get the most bang for their buck.  

What more could an investor want? 

Less regulatory intervention 

Brand image has never been easier to spoil. One tweet could spark a fire that could burn down a reputation built over decades.  

Besides violating environmental policies or human rights, bribing and corruption and other unethical executive or governance violations can shatter customer and investor trust.  

By complying with ESG standards, enterprises reduce the risk of regulatory interventions, which, even if exonerated, can blemish their brand image.   

How to get started 

One way to begin is by identifying ESG factors and creating a score to benchmark different enterprises based on how ESG-compliant they are.  

Though, a much simpler way is to just invest in ESG consulting.