The benefits of investing in sustainable ESG business practices
Last Friday I had a meeting with my financial advisor. It’s something annual. Every year I get a call from his office to schedule our annual review of my tax independence plan. My advisor is an amazing guy with numbers and a strategy. He’s always one step ahead – focused on where the puck is going, not where the puck is now.
Based on the risk and risk tolerance we have established in parts of my overall financial portfolio, he is an expert in determining which investment instruments best fit our overall plan for financial success. He watches the markets, discerns leading indicators, sees where the market is going and tells me when and where to do what.
When we last met my advisor said, “You should consider investing in ‘sustainable’ mutual funds. They are outperforming the market. Little did he know that I had written a series of sustainability blogs since January and was eager to discuss sustainability as it relates to investment strategy.
The personal benefits of sustainable business practices
These mutual funds are called ESG funds, which stands for Environment, Social and Governance, and these are portfolios of financial entities (stocks and / or bonds) for which environmental, social and governance factors have been integrated into the fund selection process.
This means that the stocks and bonds in the fund have passed rigorous testing on how this organization uses ESG criteria to drive sustainable business practices. Companies report on their sustainability with regard to ESG criteria. The fund managers then assess these scores and decide whether or not to include a particular entity / financial instrument in the fund.
The historical annual growth rate of the market is 10%, so anywhere you can achieve higher growth than this with moderate risk is worth your attention. So here’s the kicker: Some ESG funds are garnering more than 19% annual growth! $ 100,000 invested at market growth rates could be $ 260,000 in 10 years. That same $ 100,000 invested in the best performing ESG funds becomes $ 620,000 at the same time. That’s a quick $ 360,000 advantage over the market.
The three criteria of ESG funds
So what is going on here? Why are ESG funds “hot” right now? Because durability is hot right now. This is why companies are loudly clamoring for the efforts they deploy around the three ESG sustainability criteria: environmental, social and governance. Here are examples of each of these criteria:
1. Environment: Everything related to environmental responsibility: Sustainable harvesting of materials; Create less greenhouse gases; Set ambitious goals like becoming carbon neutral over the next decades.
- Example: Chrysler announces that it will only produce electric vehicles by 2030.
2. Social: Promote or participate in social movements and causes: The migrant crisis at the southern border. The Black Lives Matter movement. Speak out on anti-Asian violence.
- Example: Coca Cola changing marketing because the brand was “too white”.
3. Governance: The whole process that is at stake to ensure equitable living standards, access to public transport, equitable standards and educational opportunities.
- Example: Local governments have adhered to strict diversity and inclusion rules for hiring and contracting.
These are important social issues, and both consumers and investors are drawn to businesses they believe are on the right side of these moral imperatives. Therefore, with three relatively broad ways of describing yourself as sustainable, it’s no wonder companies are trying to catch on to this growth trend in the larger sustainability industry.
The business benefits of sustainable business practices
Speaking with my financial advisor, I realized that linking your brand to sustainable business practices is also money making for your business. Forget about my personal windfall, what can a more daring lasting position do for your results? Would you like more investors? Are you looking for growth in your market?
Need help figuring out where you can make lasting gains in your business? Check out this free beginner’s guide to LEED sustainability guidelines. It is specially designed to help architects, engineers, construction professionals and facility owners more easily apply sustainability principles to their construction projects and existing facilities.
To generate notoriety, interest and investment in your business, make “sustainable” a declaration of culture, a missionary commitment. Incorporate something into your business mantra that demands a sustainable attitude and approach in everything you do and you can begin to position yourself as the most sustainable supplier of everything you do in the market. Your business can reap the financial benefits of being recognized as sustainable.
The Hidden Benefits of Sustainable Business Practices
Moreover, not only can you and your business benefit financially, but you also benefit on a richer and more emotional level. I was recently talking to an entrepreneur about the impact she was having on her local community. She was so proud to provide work for people in her community, improve the spaces around her and build beautiful places to live and work.
There is undeniably a feeling of joy and peace that comes from knowing that you are making a difference for someone somewhere by living and creating sustainability in your daily walk. It’s heady stuff. The more you are of service to others, the happier you are.
Whatever your motivation, know that Gordian is here to help your business take the next steps towards sustainability. If you’re trying to ensure that local diversity and inclusion regulations are met, we can put you in touch with local contractors who match the bill. If you are trying to include more durable materials in your next project, we can help you estimate the impact on the overall project costs. If you want to know how your sustainability efforts stack up against those of other similar organizations, Gordian can help provide this insight.
In short, we’re here to give you a hand if you want a trusted guide on your sustainability journey.