What does ESG mean?
2 min read
To achieve the European Green Deal and the Paris Agreement, the SFDR regulation, short for Sustainable Finance Disclosure Regulation, was introduced. Companies and investment funds will soon be required to objectively report their positive and negative impact on Environment, Society and Governance. In other words: Environment, Social and Governance. Also called ESG.
ESG score: a new measurement tool.
The ESG criteria are a measurement scale for the so called "corporate social responsibility". The ESG (Environmental, Social and Governance) criteria form the three most important criteria used to measure the sustainability and the ethical impact of an investment in a company or in an economic field. ESG criteria help determine a company's societal contribution on the E, the S and the G alike. They make it possible to view the future financial performance of companies, their profitability and their risks, in a broader and above all more meaningful context than purely the financial one.
What is the importance of objective ESG criteria?
The European Green Deal introduces a framework that will make it possible to objectively weigh assets against each other in terms of ESG criteria. Greenwashing thereby becomes practically impossible.
This is for now still music of the future, but Life Experts already attaches enormous importance to these ESG criteria. The reason is that we will very quickly find that as the ESG score of a given asset (a share, a bond, a real estate investment) becomes crystal clear, the large fund houses will move their investments towards assets with higher ESG scores
A better world, thanks to your investment.
Targeted investing can have an immense impact on a better world. Introducing objective ESG criteria will make it possible for us to consciously choose the impact we personally have. Take an example. Suppose an international publicly listed company sponsors a major sporting event. And suppose that this event afterwards scores extremely poorly on the so called Social factor. There is talk of human rights violations, and workers there have to work in degrading conditions (any resemblance to a certain unnamed world championship is purely coincidental). Well, this sponsorship will in the future have an extremely negative effect on the ESG score of the sponsoring company. That means that fund managers will dump this share. The consequences can be guessed. The company becomes worth less. The shareholder will grumble. The CEO gets a slap on the wrist. The result is that such publicly listed companies will, at their next sponsorship deal, put their ESG requirements on the table with the organization. Resulting in better working conditions. This whole cascade of events ensures that the world becomes a little better. And soon all of this will happen a little bit thanks to you, and the conscious choice you made regarding your investments.
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Questions about your own situation?
This article is general information. Your adviser will look at what it means for you.