ESG investment: why can it be a good option?

Complete guide to ESG investing

The acronym comes from the English Environmental, Social and Governance and represents a set of criteria used to evaluate companies regarding their socio environmental responsibility and good management practices.

More than a trend, ESG investment has consolidated itself as an intelligent strategy for those seeking financial returns combined with a positive impact on society and the environment.

But, after all, what makes ESG investments a good option? The answer involves both ethical and practical reasons, combining awareness and strategy in the same movement. Find out now!

What Are ESG Criteria?

Before understanding why it is worth investing based on ESG, it is essential to understand each of its pillars. Below, you can see more details!

• Environmental (E): evaluates how a company deals with environmental issues, such as the use of natural resources, carbon emissions, waste management, and impact on climate change;
• Social (S): refers to how a company interacts with its employees, suppliers, customers, and the community. This includes diversity and inclusion, labor rights, workplace safety, and social responsibility;
• Governance (G): concerns the company’s management practices, such as transparency, business ethics, leadership structure, and anti-corruption efforts.

These criteria are analyzed to determine a company’s level of social and environmental responsibility. ESG investors choose to allocate their resources in businesses that demonstrate real commitment to these aspects.

Why Has ESG Investment Been Growing?

The growing global awareness of climate change, social inequality, and corruption scandals has led investors to value companies with more responsible practices.

This behavior is reinforced by data showing that, in the long term, companies that adopt ESG standards demonstrate greater adaptability and lower risks related to reputation, legal issues, or financial losses.

Moreover, many funds and financial institutions have started adopting ESG criteria in their portfolios. Large asset managers, such as BlackRock and Vanguard, for example, have prioritized companies with high ESG performance, reinforcing the idea that ESG is here to stay.

Advantages of Investing Based on ESG

Companies that ignore environmental, social, or governance issues may face fines, lawsuits, boycotts, or reputational crises. Those that anticipate and address these issues tend to suffer less from instability and unforeseen events.

Businesses that operate with a focus on sustainability tend to stand out in terms of efficiency and innovation. This can translate into greater profitability over time.

Many investors today want to allocate their money in ways that align with their ethical, social, and environmental values. ESG investing allows for this connection.

Sectors such as clean energy, sustainable mobility, and green technology are expanding and offer strong growth opportunities for ESG-focused investors.

How to Start Investing in ESG?

For those interested in adopting this strategy, the first step is to seek information. There are now several ESG-focused investment funds on the market that select companies based on these criteria.

It is also possible to analyze individual stocks and sustainability reports from companies.

Brokerage platforms and digital banks already offer ESG filters and portfolios. Additionally, rating agencies and specialized consultancies help classify companies based on their social and environmental performance.

Is ESG for Everyone?

Although the ESG concept is more present among institutional investors and large funds, it can — and should, also be part of the strategy for individual investors.

After all, investing responsibly does not mean giving up profit, but rather choosing companies that are better prepared for the future.

With advancing regulations and increasing demand for transparency, the trend is for ESG criteria to become a market standard rather than a differentiator. Thus, those who begin investing with this focus now may get ahead of the curve.

ESG investing represents a unique opportunity to combine profitability and responsibility. In a global scenario that is increasingly focused on sustainability, choosing companies that care about the planet, people and their governance is not only an ethical gesture, but also a smart and strategic decision.

For this reason, investing in ESG companies is considered a good option, especially if you want to make money and also contribute to greater environmental sustainability.

Written by

Juliana Raquel