Value of Investing In Environment, Sustainability and Good Governance
By Hooriah on April 05, 2014
Return on investment has always been the most important factor for investors since forever. The sight of what they will get in return to their investment has to be a good one in order for them to invest huge monies in the market. However, in the past few decades the trends have changed and the changes are becoming more prominent with the passage of time. It is quite clear from the reports, studies and expert reviews issued in the recent times that short term investment and return are not the major focus of most concerned investors today.
Many other factors, which are majorly not financial in nature, have emerged on the scene as essential factors in various types of investments e.g. real estate, equity and fixed-income. Investors now have long term plans and their investments are controlled by how the organizations and causes they are investing their money in will perform in the long run. They now have to keep a broad scope and strong futuristic insight when making investments. Environmental friendliness and good governance are two important factors that investors look at to measure the sustainability of companies and commodities they are investing their money in.
This particular way of investing has been named as socially responsible investing. Here’s an understanding of the three important terms:
Investing in Environment
The idea of investing in environment means the investments should be made in corporations, activities and companies that are being environment friendly. For example, investors will not feel like investing in a company that releases a lot of harmful smoke in the atmosphere without doing anything about it. Environmental investment is further divided into three categories: environmental investment, sustainability investment and ethical investment. Businesses now have to indulge in environment friendly processes and activities since their survival in the long run depends on this particular factor.
Investing in Governance
It was studied in details by the most renowned finance experts that in 90s the investors could have profited by gaining double and triple returns on their investments if only they had invested in businesses that were practicing good governance at that time. Good governance covers the policies that are implemented to distribute the rights of all stakeholders rightly. The processes within the businesses and all financial and non-financial activities of the businesses must be clean and transparent to reflect good governance. Good governance is a major deciding factor for investors before they invest in a business.
Investing in Sustainability
Sustainability is a big term with a broad meaning to it. It defines the strategies applied by businesses to remain friendly and contributive not only to the environment but the cultural and social directions too. It takes into account all the dimensions that a business must invest in to remain functional in the long term. The investors will measure the sustainability of an organization or business before investing in it by seeing how a particular business is keeping the environment safe, using resources thriftily, providing good governance etc. Terms like ESG (environmental, social and corporate governance) and CSR (corporate social responsibility) are now just a part of corporate sustainability, which is a much bigger term with a broader scope.
What the Value of Such Investment?
Businesses are started with a vision and mission. The business approach always has to be futuristic. Many activities in your business might not be environmental friendly. Some rules applied in your business might blur the outline of good governance. Many of your business strategies might not be sustainable in the long run. Despite the presence of all these factors in your business ongoing you might be earning big profits and getting huge returns on investments. However, the modern business approach and investment theories suggest that this benefit is short living. With the modern ideas and principles of investment a business not paying attention of these factors will not live competitive for long.
The investors will soon drive away from investing in businesses that are busying in anti-environmental activities. Similarly, frauds in accounts, doubtful transparency of office policies and treating stakeholders badly are examples of bad governance and it is anticipated that investors will not be investing much in businesses that are involved in such activities and processes. Recent changes and additions in the law of Britain have reflected great attention paid to environmental, sustainability and governance investing. Businesses now have to remodel their strategies in order to meet the requirements of the coming times.
To get the attention of investors and to facilitate the process of obtaining loans and debts, businesses now have to switch to corporate sustainability. Any business processes and activities that are harmful for the environment – emission of harmful gases in the air for example – will make survival difficult for businesses. Businesses that earn from alcohol, tobacco, firearms and other similar items will also have to suffer in future. Unsuitable office conditions for employees, hiding important information from stakeholders, busying in corrupt business transactions will translate to reduced sustainability strategies and thus resulting in failure of the business in the long run.