Along with 5G networking, IoT (Internet of Things) ecosystem, digital health devices, and entertainment-oriented electronics, sustainability was one of the five megatrends from CES (Consumer Electronics Show) 2021. As environmental challenges and the pandemic are threatening the world in which we live, many people started taking interest in “ESG investment”. Correspondingly, companies have been making efforts to contribute to a sustainable society. ESG investment has become a paramount topic that companies cannot ignore anymore.
What is ESG investment? According to Forbes, ESG investing is investing in companies that score highly on environmental and societal responsibility scales as determined by third-party, independent companies and research groups. The three criteria for ESG investing are environment, society, and governance, which is what ESG stands for. Investors evaluate companies with these criteria and buy qualifying companies’ stocks.
The environmental criterion may include a company’s energy use, treatment of animals, natural resource conservation, pollution, etc. It regards the environmental risks a company might encounter, and how the company is managing the risks. Next, the social criterion refers to the company’s business relationships. For example, investors may take interest in the company’s relationships with the local community, suppliers, employees, and other stakeholders. A company that beneficially contributes to society may receive a favorable evaluation. Finally, the governance criterion evaluates the company’s credible accounting methods and transparent management.
ESG investment started with a deep concern for the upcoming environmental crisis and society’s sustainability issues, but the benefits of ESG investing exceed the simple environmental outcomes. Recently, ESG indexes and ESG-aware index funds showed higher returns compared to existing indexes such as the Russell 1000 or S&P 500. The JULCD (JUST U.S. Large Cap Diversified) Index, one of the leading ESG indexes run by JUST Capital, outperformed the Russell 1000 Index for three years in a row—2017, 2018, and 2019.
Since companies with high ESG scores are showing significant performance not only environmentally but also financially, many companies are striving to improve their ESG status. Early this year, Samsung Display presented a mid-term and long-term plan for ESG management, especially focusing on the following areas—climate change, sustainable products, resource circulation, win-win collaboration with partners, and local communities. At CES 2021, the company presented a remote control utilizing solar cells to reduce chemical battery waste. Microsoft, one of the most leading companies in ESG management, committed to becoming “carbon negative” by 2030, promoting sustainable development and low-carbon business.
After years of industrialization, carbon emission was considered a natural part of business and the social responsibility of a company was neglected. The recent ESG management and investment wave rising in businesses is definitely a positive signal for the entire planet, and its outcomes are to be looked forward to.