Sustainable Investment Criteria or ESG

What are sustainable investment criteria or ESG?

The acronym ASG meets criteria Aenvironmental, SSocial and of GCorporate Governance, also known by its acronym in English as ESG (ANDenvironmental, SSocial and Ggovernance) and which was introduced in 2004 by the United Nations Global Compact.

The ESG criteria are the result of the evolution of what is known as Socially Responsible Investment (SRI), thus defined as investment that globally considers the economic dimensions, social and environmental (triple balance). At the intersection of these dimensions is the so-called circular economy.

In short, sustainable investment is an investment model that meets criteria that go beyond the search for profitability and integrates environmental, social and corporate governance criteria into the process of studying, analyzing and selecting securities in the investment portfolio.

Why is sustainable investment important?

Sustainable investment, following ESG criteria, is closely linked to social responsibility and future sustainability, and contributes to the fulfillment of the Sustainable Development Goals (SDGs), approved in 2015 by the United Nations as part of the 2030 Agenda.

“Sustainable development is development that meets the needs of present generations without compromising the needs of future generations.” (Brundtland Commission, 1987)

Increasingly, and especially since the 2020 health crisis caused by COVID-19, society is aware of the significant social, environmental and governmental repercussions of all business activity. That is why investment criteria are changing and the world of finance is assuming that it plays a fundamental role in the sustainability of our planet.

In this way, far from being a fad, sustainable investment strategies have become more important and ESG criteria are beginning to be considered in decision-making, not only based on economic benefit. That is, in addition, environmental, social and government impacts, both negative and positive, are taken into consideration, seeking to minimize the former - in the reduction of CO emissions₂, for example- and empowering the latter -with the creation of inclusive employment, for example-.

The fact that investment and financing decisions take into account these ESG criteria favors the development of the circular economy as a new productive model and that economic development is inclusive and open, with equal opportunities for all of society.

In short, sustainable investment represents a firm step in the transition to a sustainable global economy.

What benefits does sustainable investment bring to companies?

Among the benefits of betting on ESG criteria is that of business innovation itself by redirecting investment and financing criteria, which will, in turn, result in greater opportunities for companies.

In addition, sustainable investment reduces the risks of their business models and contributes to a better competitive position.

On the other hand, investing in a sustainable way does not mean giving up profitability, but it is also even more profitable because extra information is incorporated and includes non-financial factors that drive value creation.

Other forms of sustainable funding...

In addition to ESG criteria, other forms of sustainable financing are distinguished:

• CFI (International Finance Corporation), which helps prevent, mitigate and manage environmental, social and governance risks and impacts.
• Green Bonds, which allow for capital raising and investment for new and existing projects with environmental benefits.
• Principles of Ecuador, which are intended to serve as a common reference and risk management framework for financial institutions to identify, evaluate and manage environmental and social risks when financing projects.