Why is this important?
In this era marked by the fight against climate change, efforts to preserve biodiversity and increasing awareness with respect to issues of diversity, equity and equality, companies are confronted with multiple challenges that force them to adapt their business model. Those that do not succeed in this area risk a decrease in profitability, which is why the decision to invest in a security must take into account the potential costs to shareholders of these issues. Here are some other good reasons to pay attention to SRI:
- In combination with the analysis of traditional financial or macroeconomic data, incorporating ESG contributes to enhanced risk management by taking non-financial factors into account.
- In addition to the potential losses associated with controversial industries or companies that do not engage in sustainable practices, the application of positive filters makes it possible to identify growth opportunities. A company that excels in the management of ESG factors is better positioned to increase its returns and reduce its debt. Companies that lower their GHG emissions, maintain good community relations and exercise sound governance enjoy a better reputation, are subject to fewer lawsuits or penalties and are increasingly favoured by managers, thus increasing their premium.
- In addition to incorporating ESG factors into analyses, portfolio managers who use an SRI approach often make use of shareholder engagement to influence the behaviour of the companies they invest in, which can be accomplished by dialoguing with management or exercising voting rights. The more this trend spreads within the financial ecosystem, the more managers will take the expectations of their shareholders into account and improve their practices.
- Finally, SRI allows investors to positively impact future generations by contributing to sustainable economic prosperity and the development of more responsible capital markets.