ESG Investments have attracted wider attention from both investors and customers worldwide. These kinds of investments largely follow a triple – bottom – line approach that combines financial returns with environmental and social norms. Investment decision – making processes and investment analyses are increasingly emphasizing the sustainability of investments and adherence to environmental, social and governance (ESG) norms. These forms of investments always involve a contradiction between simple profit maximisation and ESG integrated profit maximization options.
One of the crucial ingredients of sustainable investment is transparent ESG reporting and disclosure of information. While ESG reporting and disclosure have a legal standing in many countries, they are voluntary in nature in many others. The reporting and disclosure of information are vital for investors and customers to understand corporate houses’ long-term business and investment strategies and assess their sustainability quotient.
The increasing perils of the environmental and climate – related crisis have recently emerged as compelling factors for countries to mobilize private investors as important stakeholders in achieving the sustainable development goals (SDGs) by incorporating ESG factors into investment processes and investment decision – making systems. There is an expectation that business entities will play a pivotal role in and bear significant social and environmental responsibilities for taking appropriate measures to minimize the mounting environmental and societal crisis.
ESG Investments – Global Scenario
- Globally, ESG investments have achieved momentum as a mechanism attracting both investors and consumers. There are three direct drivers of such rise in ESG investments.
- Increasing recognition that integrating ESG factors could generate salutary effects on investors risks and returns.
- Aspirations of the beneficiaries and clients about the transparency of the money that companies are investing and the role that ESG investments can play in meeting these aspirations.
- Increasing legal framework for ESG investments and the legal imperatives for such investments in various countries across the world.
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