ESG stands for Environmental, Social and Governance, a concept now firmly established in the financial sector as a basis for judging the sustainability of investments.
Sustainable finance is the application of the concept of sustainable development to financial business. The idea is to guarantee the “capacity for the future”, i.e. a rational use of resources so as not to compromise the ability of the resources themselves to continue to produce value over time.
Sustainable finance, therefore, creates value in the long term: it directs capital to activities that not only generate added value, but does so in a way that is both useful to society and does not exceed the capacity of the environmental system. This is what differentiates it from pure finance operations.
It has been confirmed that ESG criteria are features that distinguish the quality of a company in the long term. Companies with high ESG values are better equipped to deal with crises and achieve better performance on average than their competitors. In finance and asset management it has been shown that ESG investments tend to exhibit a better risk/return profile than equivalent traditional investments. ESG criteria therefore represent an essential quality index.
This is why investors are increasingly taking ESG factors into account. Benefitting from an additional push from millennials, the growth in demand is unstoppable. Integrating ESG criteria into analysis has therefore become key, not only in terms of institutional investors but also for financial advisors worldwide.