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Critical Essay #3 Sustainable Investment Assets have reached US$ 12 trillion. A 2018 report identified $11.6 trillion in ESG
incorporation assets under management at the outset of 2018 held by 496 institutional investors, 365
money managers and 1,145 community investing financial institutions.
(Keeping in mind the material we have covered in Financial Analysis and Ethics, and based on your own
referenced research, please answer the following questions) :
Question 1: What is the record in terms of volatility and stock returns for companies with better ESG
scores? (50 to 100 words excluding references)
Comparatively speaking, companies with better ESG scores typically show less volatility and produce higher stock returns. Studies show that taking social, environmental, and governance factors into account when making investment decisions can reduce the risks associated with the market volatility, resulting in more consistent performance over time (Khan, Serafeim, & Yoon, 2016). A company that highly invests in ESG efforts allows companies to benefit from enhanced reputation, reduced regulatory risks, and improved operational efficiency. This not only makes ESG integration a financially attractive investment but also make it strategically advantageous for businesses.
Sources :
Khan, M., Serafeim, G., & Yoon, A. (2016). Corporate Sustainability: First Evidence on Materiality.
The Accounting Review
,
91
(6), 1697–1724. http://www.jstor.org/stable/24907173
Question 2: How do SRIs relate to green bonds, ESG scores and equator principles? Differences and
overlaps (50 to 100 words excluding references)
-
Socially Responsible Investments (SRIs) focus on investing in companies that align with ethical, social, and environmental values(
(CFI Team, 2023).
. Green bonds specifically fund environmentally friendly projects, in which SRI's invest in. SRIs consider broader ethical concerns, while green bonds are focused on financing projects with positive environmental benefits. ESG scores evaluate a company's performance on environmental, social, and governance criteria, guiding SRI decisions. Equator principles guide banks in assessing and managing environmental and social risk in project finance (Equator Principles, 2020). ESG scores and Equator Principles are frameworks for evaluating sustainability, with ESG scores focusing on overall performance and Equator Principles on project finance risks. Their overlap lies in their shared goal of promoting responsible investing and sustainable development.
-
Socially Responsible Investments (SRIs) prioritize companies aligned
with ethical, social, and environmental values (CFI Team, 2023). Green bonds specifically fund environmentally friendly projects, in which SRI's invest in. SRIs consider broader ethical concerns, while green bonds are focused on financing eco-friendly projects. ESG scores evaluate a company's environmental, social, and governance
practices, guiding SRI decisions. Equator principles guide banks in
assessing and managing environmental and social risk when financing projects (Equator Principles, 2020)
. ESG scores and Equator Principles are frameworks for evaluating sustainability, with ESG scores focusing on overall performance and Equator Principles on project finance risks. They all aim for responsible investing and sustainable development.
Sources
CFI Team . (2023, December 8). Socially responsible investment (SRI)
. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/esg/socially-responsible-
investment-sri/
Equator Principles . (2020, July). The equator principles_ep4_july2020
. https://equator-
principles.com/. https://equator-principles.com/app/uploads/The-Equator-
Principles_EP4_July2020.pdf
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