We live in uncertain times. That’s a given. How can small business owners protect their assets amid the turbulence?
Socially responsible investing is one powerful way. Socially responsible investing (SRI), also known as ESG (for Environmental, Social and Governance) is an investment strategy that is committed to generating social change along with positive financial returns.
Entrepreneurs such as Cyrus Nikou have made socially responsible investments a cornerstone of their business for this very reason: to do well by doing good. As a father of two young children, Nikou believes it is possible to address the world’s most challenging problems through smart investments that will positively impact our future.
What’s ahead for SRI/ESG? Here are half a dozen trends to watch:
Another timely acronym is key for socially responsible investors now: DEI, or Diversity, Equity, and Inclusion. With close to 100 percent of institutional investments still made by white male teams, the time is ripe for greater diversity, according to Meredith Heimburger, partner and head of impact investing at Global Endowment Management. “Data demonstrates that diverse teams outperform their homogenous peers. This has been true for investment funds and firms, and public companies,” she says.
Just as DEI has become a watchword for people, biodiversity has taken center stage for the planet’s non-human habitation. Thanks to human desecration of forests and the growing climate crisis, we’re losing species around the globe at an unprecedented rate. Yet these vanishing animal and plant species are crucial to maintaining life and balance for all. Many people have heard the prediction that if bees become extinct, humans will not survive beyond four years. So in this regard, biodiversity is a key trend for ESG.
3. Women leading the charge
Today, more than half of U.S. households have a woman as the primary breadwinner, which indicates a shift in financial power, particularly among younger generations. A Wells Fargo study found more than half of Millennial and Gen X women manage the family finances, in contrast with only 40% of Baby Boomer and older generations. Women tend to invest according to their values: what is best for their children and family, which aligns with what they believe will also benefit their community and the planet. Therefore, as women become wealthier, ESG investing grows.
4. Net zero business model
With climate change now a global concern, governments and companies worldwide have pledged to reduce their carbon emissions to zero by 2050. This is a worthy, if ambitious, goal, given that it’s just a generation away. ESG investors are demanding organizations develop specific measurable, achievable near-term signposts toward decarbonization in the supply chain, which accounts for over 90% of a company’s greenhouse gas emissions.
5. Welcoming regulatory oversight
Most employees chafe at being micromanaged, but when it comes to socially responsible investing, the opposite holds true: investors want more transparency. Corporate executives are embracing ESG investing regulations to better understand and oversee how well their organizations are doing with the goals they’ve set (for instance, net zero by 2050), and to provide greater accountability and strategic focus. As ESG becomes better integrated into a company’s core business model, we can expect greater disclosure with stakeholders.
6. Greenwashing challenge
As with all popular initiatives, the burgeoning SRI/ESG market has given rise to poseurs. Known as “greenwashing,” these companies strive to present an environmentally friendly/sustainable public image that is mostly a façade. The challenge to socially responsible investments and ESG is to manage the total sustainable debt issuance, at a record high of $960 billion, in a way that preserves the legitimacy of these financial instruments. This ties into the need for greater transparency with stakeholders to protect the integrity of the sustainable investing market as it continues to grow.