What is ESG Investing and Why Should SVL Care?

June 10 2021

SVL places a great deal of importance on creating a harmonious relationship between developing a profitable business and integrating social, environmental and corporate governance responsibility. This involves an overall business strategy that takes into consideration the environment, a diverse and caring workplace, transparent corporate governance and our employees’ livelihoods. In an increasingly open, diverse and inclusive world, SVL believes companies that do not prioritize their employees will ultimately fail and that it is a collective best interest to learn about and address the needs of loyal and determined employees.

We believe a transparent and structured approach to corporate governance is a prerequisite to achieving SDGs (Social Development Goals) and ESG (Environmental, Social and Corporate Governance) targets. ESG refers, specifically, to the measurement of a company’s sustainability and societal impact. It is widely believed that companies that harm the environment or society will eventually fail in the long term, meaning shareholders must prioritize the adoption of ESG best practices to help protect their future financial performance. SVL educates our own customers about the concept of ESG and illustrates to them that the changes they make, no matter how small or large, can impact their sustainability, costs and productivity.

It’s of interest to note that the concept of ESG gained a great deal of traction towards the end of the last century when, in 1988, James S. Coleman published an article in the American Journal of Sociology titled “Social Capital in the Creation of Human Capital.” The article challenged the dominance of the concept of ‘self-interest’ and capitalistic solipsism in economics and introduced the notion of social capital into the measurement of value.

So, what exactly is ESG?

“Socially responsible investing is an investment strategy that considers an investor’s moral values as well as a company’s potential financial returns, and typically excludes investments that don’t sync with both. ESG investing is more focused, specifically zeroing in on the environment, social issues and corporate governance. Together, these three factors are considered to determine the potential positive impact of a given investment. The idea is to invest in companies that stand out in one or more of these areas. 

Some experts argue that companies that excel in ESG are better positioned for growth because they’re actively addressing areas of concern for both consumers and employees. When a company prioritizes things like fair working conditions, diversity and sustainability, for instance, it’s demonstrating a commitment to its own workers and the greater community. This, in turn, could make them especially attractive to conscious investors.”

Experian, April 2021

Many in the investment industry believe the development of ESG factors as considerations in investment analysis to be unavoidable. The evidence towards a relationship between consideration for ESG issues and financial performance is becoming greater. The combination of fiduciary duty and a wide recognition of the necessity of the sustainability of investments, in the long term, has meant that environmental, social and corporate governance concerns are now becoming increasingly crucial in the investment market. ESG, as a critical concept, has become less a question of philanthropy than practicality.

As far as SVL is concerned, we know that the allocation of capital is the main engine for economic and corporate activity in any capitalistic environment. ESG can be a vehicle for capital to be allocated to businesses that add value to society and prioritize Corporate Governance, Social Issues, and Environmental Issues. Indeed, both public and private capital is often, in the current climate, taking this form and it’s hoped that firms like SVL will find it easier to attract capital and investment. And as investors focus on ESG, the overall cost of capital for firms that are implementing ESG strategies will be lower thus giving them a tremendous strategic competitive advantage. 

In a fundamentally palindromic approach, those SVL customers most influenced by our ESG awareness and education can themselves better attract investment and pursue expansion. In the long term, taking ESG seriously benefits SVL, our customer base as well as society and the environment as a whole.