This is investment in issuers' securities, which contribute to the development of society. The responsible investor considers how much money the investment in the company's securities will bring him. But it is also important to him how the company in which he invests earns and whose projects he indirectly finances. Where it directs its profits and whether it accepts social responsibility. For example, it makes eco-packs, builds hospitals or sponsors the installation of solar power plants.
Investors watch both the quotes and the company's work. If an organization neglects global values and damages the environment, investors sell shares, causing the price of securities to collapse.
Responsible investors sell assets to punish the corporation: the cheaper the shares, the more expensive the company is to raise capital. But by doing so, they can punish themselves. The cheaper shares are bought by other "unscrupulous" investors and they win on the subsequent rise in price.
In 2018, the world learned that Facebook employees "leaked" personal data to 50 million users. They were selling information to Cambridge Analytica, which worked with the U.S. campaign headquarters. Investors were outraged by this news and began selling shares: as a result, the company's capitalization (the value of all its shares) collapsed by $23.8 billion.
How to become an ESG-investor?
Decide for yourself what values you have, what company you want to sponsor. For example, if you have given up plastics and are concerned about climate change, invest in companies with environmental initiatives.
Imitate investment funds: Take a list of blue chips, the most liquid securities, and choose among them those that match your values. In this way, you will maintain a balance between your desire to earn money and adherence to your principles.
Invest in ethical funds
You can invest in ETFs, which select assets according to ESG criteria. There are no such ETFs on the Moscow Exchange yet, so look for ethical funds on foreign exchanges. An ETF (Exchange Investment Fund) buys a diversified portfolio of securities and then sells it in shares.
SPDR SSGA Gender Diversity Index ETF (SHE) invests in securities of US companies with high capitalization and a high proportion of women in management positions.
Etho Climate Leadership US ETF (ETHO) buys shares in companies that leave a smaller carbon footprint. The fund has been removed from the fur, tobacco and arms industries.
Buy green bonds
Technically, green bonds are ordinary bonds. Their only difference is that the investments raised are used to finance environmental projects.
In 2018, the company Resource Saving KHMAO placed its first green bonds on the Moscow Exchange. The company will allocate the raised money for utilization of solid municipal expenses in Nefteyugansk, Pyt-Yakh and Nefteyugansk settlements.
The sustainable development sector of the Moscow Exchange has 3 segments: green bonds, social bonds and national project bonds. So far, there are 2 securities in this sector: green bonds of Center-Invest Bank, which will direct investors' money to finance loans for energy-efficient projects, and FPK Garant-Invest (attracted funds to introduce "green technologies" in real estate).
Investments changing the world
The race of companies for profit does not stop, it is still the main motivator of the market. But today, super profits are unattainable if businesses ignore the principles of sustainable development. At the same time, every year the capital of responsible investors grows by about a third.
Exchanges include ESG factors in public company reporting requirements, regulate the placement of green bonds and other ESG-oriented securities. For example, NASDAQ has issued its own guide to non-financial ESG reporting.
Companies implement sustainable development principles, voluntarily publish non-financial reports and take their own initiatives. For example, Apple has established the China Clean Energy Fund, in which it plans to invest $300 million. The Fund will sponsor clean energy projects. Communications departments work closely with social, environmental and health and safety departments to provide investors with up-to-date information. The companies also provide these ratings and indices to participate in them.
Briefly Responsible investment is investing in issuers' securities, which contribute to the development of society.
ESG factors are ecology, social development and corporate governance.
Green bonds are bonds whose issuer directs attracted money to finance environmental projects.
To become a responsible investor, you need to analyze ESG ratings, buy green bonds or invest in ethical funds.
How to get corporations to work for the benefit