Preserving investments via ESG-driven stocks/funds. Is there a lesson from 2008 financial crisis?

In recent years, there has been tremendous expansion and acceptance of the notion of investing with an emphasis on sustainability. As per a report last year, over 90% of global investors evaluated ESG matters in some way as part of their investing strategy. Additionally, more than 60% of the domestic consumer base is not only keen on availing the services of companies that have adopted sustainability in their routine operations but is also willing to pay more for the same. This proportion continues to rise as fresh reports are released. Thus, it won’t be wrong to say that the figures clearly reflect that ESG-driven enterprises give an attractive option to long-term investors seeking to develop sustainable wealth.

Market demand and customer preferences
There is an increased demand for sustainable and ethically sourced products/services. Consumers are progressively making investment decisions based on ESG concerns. Companies that prioritize sustainability, social impact, and ethical practices are more likely to attract customers and acquire a competitive edge. Investors are aware of this market shift and are actively seeking for opportunities in companies that align with changing consumer preferences.

ESG’s social and governance components boost investor trust by highlighting the company’s adherence to moral business conduct, and long-term sustainability, which could in turn enhance financial figures and the overall performance of the company. The resilience built after such an integrated framework can offer investors, confidence and security during times of uncertainty.

Resilience in downturns

The world economy is experiencing one of its most difficult periods. As a result, investors are constantly searching for other options that can rescue their investments from the perils of a slump if they do not earn high returns. ESG-driven corporations can construct a positive rapport with external stakeholders and leverage greater access to capital as they focus on long-term mutually beneficial value generation. In the future, this long-term approach can, in turn, present a resilient opportunity for passive investors.

Based on a report by MSCI, ESG stocks outperformed, during the 2008 financial crisis, with a lesser drop in price value. On the contrary, several analyses also indicated that ESG activities had little to do with stock prices at the time. However, looking at the current situation, there is no doubt that global leaders and institutions are progressively prioritising the implementation of ESG. In fact, Bloomberg Professional Services expects that global ESG assets will surpass $53 trillion by 2025.Being aligned with compliances
From constructing a standardized ESG framework for the top 1000 listed companies to the formation of the ESG taskforce for the textile industry last month, the Indian government is trying hard to make domestic sectors sustainable and attractive for investors.

Undoubtedly, ESG considerations are becoming increasingly significant to national authorities and regulatory entities. Companies adopting effective corporate practices that are aligned with the notions of ESG are more inclined to comply with current and future requirements. As a consequence, it decreases legal and regulatory concerns for investors while concurrently offering assurance about the company’s long-term survival.

While investing in ESG-driven companies/funds can assist you in preserving your investments, it is essential to understand that several other factors can impact the end value of an asset. The performance of any institution is based on a variety of factors, including changes in management, company policies, government compliances, and quality of the workforce; these aspects differ from sector to sector. Ergo, it is always advised to seek professional help when it comes to evaluating figures that can impact the figures of your assets.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)