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The Benefits of Investing in ESG Sustainable Business Practices

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The Benefits of Investing in ESG Sustainable Business Practices


By Gordian | John Timmerman | September 17, 2021
ESG

Last Friday, I had a meeting with my financial advisor. It’s annual thing. Every year I get a call from his office to schedule our annual review of my fiscal independence plan. My advisor is an amazing guy with numbers and strategy. He’s always a step ahead — focused on where the puck is going, not where the puck is now.

Based on the risk and risk tolerance we’ve established in certain parts of my overall financial portfolio, he is a master at determining which investment instruments align best with our overall plan of financial success. He watches the markets, discerns the leading indicators, looks to where the market is trending and tells me when and where to do what.

At our last meeting, my advisor said, “You should consider investing in ‘sustainable’ mutual funds. They’re out-performing the market.” Little did he know that I had been writing a series of blogs on sustainability since January and was eager to discuss sustainability as it pertained to investment strategy.


The Personal Benefits of Sustainable Business Practices

These mutual funds are called ESG Funds, which stands for Environmental, Social and Governance, and they are portfolios of financial entities (equities and/or bonds) for which environmental, social and governance factors have been integrated into the fund-selection process.

This means the equities and bonds contained in the fund have passed stringent tests over how that organization is using ESG criteria to drive sustainable business practices. Companies report on their sustainability in regard to ESG criteria. Fund managers then evaluate those scores and decide whether to include a given financial entity/instrument in the fund.

The historical annual growth rate for the market is 10%, so anywhere you can get growth over that with only moderate risk is worthy of your attention. So here’s the kicker: Some ESG these funds are raking in over 19% annual growth! $100k invested at market growth rates could be $260k in 10 years. That same $100k invested in the highest performing ESG funds becomes $620k in the same time. That’s a quick $360k benefit over the market.

ESG


 

The Three Criteria of ESG Funds

So what’s going on here? Why are ESG funds “hot” right now? Because sustainability is hot right now. That’s why companies are clamoring to publicly state the efforts they are taking based around the three ESG sustainability criteria: environmental, social and governance. Here are examples of each of those criteria:

1. Environmental: Anything tied to environmental responsibility: Sustainably harvesting materials; Creating less greenhouse gases; Setting lofty goals like going carbon neutral over the next few decades.

  • Example: Chrysler announcing they will only be producing electric vehicles by 2030.

2. Social: Promoting or participating in social movements and causes: The migrant crisis at the southern border. The Black Lives Matter movement. Speaking out on Anti-Asian Violence.

  • Example: Coca Cola changing marketing because the brand was “too white.”

3. Governance: All the process that’s in play to ensure equitable living standards, access to public transportation, equitable education standards and opportunities.

  • Example: Local governments held to strict diversity and inclusion rules for hiring and contracting.

These are “big button” social issues, and both consumers and investors are attracted to companies that they think are on the right side of these moral imperatives. Therefore, with three relatively broad ways to describe yourself as sustainable, it’s no wonder that companies are trying to latch onto this growth trend in the broader sustainability sector.


The Business Benefits of Sustainable Business Practices

Talking with my financial advisor made me realize that linking your brand to sustainable business practices is a money maker for your company, as well. Forget my personal windfall, what can taking a bolder sustainable position do for your bottom line? Would you like more investors? Are you looking for growth in your market?

Need some help knowing where you can make sustainable gains in your business? Check out this free Beginners Guide to LEED Sustainability Guidelines. It’s specifically designed to help architects, engineers, construction professionals and facility owners more easily apply sustainability principles to their building projects and existing facilities.

To drive awareness, interest and investment in your company, make “sustainable” a culture statement, a missional commitment. Build something into your corporate mantra that demands a sustainable attitude and approach to everything you do and you can begin to position yourself as the most sustainable provider of whatever it is you do in the marketplace. Your business can enjoy the financial benefits of being known as sustainable.

Sustainability


 

The Hidden Benefits of Sustainable Business Practices

Additionally, not only can you and your business benefit financially, you also get to benefit at a richer and more soulful level. I was talking to a contractor recently about the impact she was having on her local community. She was so proud to be providing work to people in her community, improving the spaces around her and building beautiful places to live and work.

There is undeniably a sense of joy and peace that comes from knowing that you are making a difference to someone somewhere by living and creating sustainability in your daily walk. That is heady stuff. The more you do in the service of others, the happier you are.

Whatever your motivation, know that Gordian is here to help your company take the next steps towards sustainability. If you are trying to ensure adherence to local diversity and inclusion regulations, we can get you connected to local contractors that fit the bill. If you are trying to include more sustainable materials in your next project, we can help you estimate the impact on overall project costs. If you want to know how your sustainable efforts compare with other similar organizations, Gordian can help provide that insight.

In short, we are here to lend a hand if you would like a trusted guide on your sustainability journey.
 

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