The need for ESG – money is the biggest influencer in tackling climate change

Sustainable Pension Funds

The need for ESG – money is the biggest influencer in tackling climate change

The climate and environmental challenges we face are overwhelming, and many people question what they can achieve independently. Aside from all the things we can do to reduce our environmental impact, focusing on our savings and investment is an area that often gets dismissed.

Last year, UK investors allocated over £11 billion of funds with strict measures to invest in businesses with high standards on environmental, social and corporate governance, collectively referred to as ESG. According to Calstone, the largest global funds network generating this information, less than £1 in every £100 of net new money was invested into ESG funds in 2018, compared to £78 for every £100 in 2021.
The true power of finance to generate change is now recognised. Similar to governments needing votes, businesses rely on our capital to finance themselves, and so we have the influence and power to transform our world, and this is specifically what ESG investing intends to achieve.

By allocating capital towards businesses with high standards and diverting money from those not meeting the necessary level, it should become challenging for companies that pollute or fail to prioritise their people and the environment.

Many people are yet to get on board with the ESG movement. The vast majority of our current investments represent decisions made before ESG emerged. Creating new capital for ESG funds is still a relatively new concept for many people.

There is also a case of priorities, with some people focusing more on social justice, whereas others view climate change as the biggest issue. The other challenge is defining an investor and what criteria should be applied when decision-making. Most businesses have their approach and idea on selecting and establishing their investment plans. This area is critical to ensure ESG funds succeed in delivering the intended results.

The final area to consider relates to the overall investment risk and returns. Businesses focused on delivering new solutions to the challenges we face without impacting our planet or society should be where we intend to invest. Determining the level of both risk and opportunity is a significant factor, especially when many businesses are failing to bear the costs they have on our planet.

Creating a global agreement on environmental standards would level the playing field and support further innovation. While adopting this style of practice may drive up prices, it would reduce the impacts on our environment and the long-term costs associated with climate change and our health.

Implementing stricter conditions and rules on environmental protection would level the playing field, but it’s clear that money is the most impactful tool regarding the environment and climate challenge. Looking ahead to this year, hopefully, more people will adopt ESG and change the way they invest for the future.

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