ESG, excuse me?

2 min 62

Without question, sustainability is one of the most pressing issues of this century. Climate change, a growing world population, waste of resources, and the list continues. Fortunately, sustainability is increasingly becoming more important in the investment world. In this context, the term ESG criteria keeps popping up. But what is ESG, and what does it refer to?

The ESG criteria

ESG comprises the first letters of the words Environment, Social, and Governance. 

Environment: The extent to which a company’s operation’s impact on the environment is considered. Indicators include greenhouse gas emissions, energy consumption, and biodiversity. Companies that take a pioneering role and incorporate environmental issues more firmly into their decisions can gain importance in the long term and actively help reduce the environmental burden.

Social aspects: Fair play should not be limited to the realm of sports! Social elements such as fair working conditions, health protection, a ban on child labor, transparent supply chains, and a positive social commitment are at the forefront. 

Corporate governance: “Human dignity is inviolable” is written in the German constitution. The concept of corporate governance goes in a similar direction and refers to human rights, anti-corruption measures, equal opportunities, and corporate transparency.

Implications for investment behaviour

However, to ensure that companies do not just claim they are doing well in ESG criteria and allegedly create more transparency and comparability, so-called rating agencies examine and rate companies for their ESG factors. This supports investors in their decision-making and puts pressure on those companies that perform particularly poorly in these ratings.

However, ESG is more than just a concept or a rating template. Increasing awareness of sustainability can lead to a positive chain reaction. We, consumers, increasingly demand products and services that take sustainability into account. This, in turn, means that investors are increasingly demanding that companies become more sustainable; otherwise, their customers will leave. Companies are interested in the company’s success and do not always act altruistically.

ESG is not everything, but a step in the right direction

Even if the ESG approach cannot solve all problems because companies are not forced to align themselves with these criteria or even try to present themselves better than they are, it is a step in the right direction. We at UnitPlus, are also convinced of this. That’s why all UnitPlus portfolios are composed exclusively of ETFs that meet ESG criteria. Many of our ETFs even go one step further with Socially Responsible Investment. As a result, our portfolios are above average in the sustainability category, with an MSCI ESG rating of 8.2 out of 10.0. 

So your UnitPlus portfolio not only works for your future but also does so in a more environmentally responsible way, making it more sustainable.

Kerstin Schneider