How Is Climate Change Impacting the Funds & Portfolios Worldwide?

 Climate change has been a significant concern for governments and corporations worldwide. There is a growing concern regarding the deteriorating climatic conditions among the public at large. A substantial contribution to this development can be attributed to various business activities that have negative environmental consequences. The road toward sustainability starts with ethical business practices that also consider social welfare. 

Portfolio managers from reputed institutions have realised how significant climate change is; it's evident in their investment shift towards renewable energy and green technology. The use of ESG research for investment decisions is growing popular among investors. More investors are now accounting for businesses' social and ethical practices before investing in the same. Let's dig deeper to learn more about ESG and how climate change affects the funds and portfolios worldwide.

What is ESG?

Environmental Social and Governance (ESG) can be defined as assessing a firm's collective consciousness for environmental and social elements. It provides a set of standards for corporation operations that socially conscious investors use to filter out potential investment opportunities. The environmental criteria measure a company's performance based on how it values nature and its efforts to preserve the same. 

The social criteria evaluate how well a company manages its relationship with different stakeholders, including employees, customers, suppliers, etc. The governance part looks at some of the important aspects related to the company's leadership, audits, internal management & control, shareholder rights, etc. ESG research is comprehensive and takes a detailed view of various vital aspects of a business.  

The working of ESG criteria

The ESG approach to investing that takes environmental, social, and governance factors into account also helps investors to hedge against financial risks related to businesses that are not taking climate considerations into account. There are various reputed brokerage firms, mutual funds and robot advisors offering investment products that follow the ESG approach. The inclusion of ESG criteria makes the investment products more attractive to environmentally conscious and aware customers. 

ESG investing is value-based and follows the need of the hour that calls for environmental salvation. As per a popular research report from the US SIF Foundation, it was found that over USD 17.1 trillion assets were held by investors who followed the ESG approach. This was a significant rise as compared to the beginning of 2020. The ESG based asset value was close to USD 5 trillion during that time. ESG investing is popular among investors by many names, including sustainable investing, impact investing, socially responsible investing, etc. 

A sustainable approach to portfolio management 

When you look around yourself, you will find many instances of climate change that are hard to ignore. Rising sea levels, droughts, summer heatwaves, massive wildfires are some of those changes that make climate change quite evident. However, many unnoticed changes will also eventually affect our living. These human-induced climate changes will undoubtedly affect our daily lives. Changing this situation requires a grass-roots approach that only supports businesses that factor in climate change before starting an operation. 

Climate change has been a significant concern for governments and corporations worldwide. There is a growing concern regarding the deteriorating climatic conditions among the public at large. A substantial contribution to this development can be attributed to various business activities that have negative environmental consequences. The road toward sustainability starts with ethical business practices that also consider social welfare. 

Portfolio managers from reputed institutions have realised how significant climate change is; it's evident in their investment shift towards renewable energy and green technology. The use of ESG research for investment decisions is growing popular among investors. More investors are now accounting for businesses' social and ethical practices before investing in the same. Let's dig deeper to learn more about ESG and how climate change affects the funds and portfolios worldwide.