However, it is yet to catch investor attention in India. ESG stands for ‘environmental’, ‘social’ and ‘governance’ and ESG investing entails researching and factoring in ESG parameters in addition to the usual financials when evaluating potential stocks for your portfolio. Research over the past several years across developed markets has increasingly indicated that this investing method can reduce portfolio risk and generate competitive investment returns. The other added advantage is that investors can feel good about the stocks they own as they are a part-owner of a company which is positive to the environment and people around at large.
Pillars of ESG
Given the three parameters under consideration, ESG investing is also known as sustainable investing. It helps an investor generate sustainable returns over the long term while adhering to the three pillars of ESG investing.
Environmental: This factor takes into consideration how a company mitigates its greenhouse gas emissions and whether the products created by it are sustainable with efficient use of natural resources. It also takes into account how corporates deal with recycling.
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September 28, 2020