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Back to Basics: What is ESG?

VIDEO: Antonia Iacurci, aged 6, asks Morningstar analyst Elizabeth Stuart about ESG investing and why it's becoming more popular

Holly Black 4 September, 2019 | 10:18AM

 

 

Antonia Iacurci: Hello, I'm Antonia Iacurci. This is Elizabeth Stuart. Today, we are talking about ESG. What is ESG?

Elizabeth Stuart: Yeah, good question. So, ESG stands for environmental, social and governance. And basically, if we only want to invest our money in good companies, these are the tests that we put them through to see how good they are. So, environmental, these are the things that we want to check on to make sure that the company maybe doesn't contribute too heavily to climate change, or that they don't damage our natural environment. Social refers to, we want to ask, do they pay their staff well, do they treat them well, do they make it a safe and a pleasant place to work in and also, do they give equal opportunities to all different types of people in society? And then governance is about the bosses. So, do we trust them, do we think that they're honest, do we trust them to make good decisions? And then, if a company does well on all these tests, then we'd say that they're a good company, they're a sustainable company, and that they're likely to stick around for a long time and give us stable profits over time.

Iacurci: Why is it important?

Stuart: Well, it's important because climate change is a really important issue that we all need to work on together to solve. And also, we want to live in a fair and an honest society. And ESG is a way that people can put their money where their mouth is, and make themselves heard, and show companies what we expect of them on all the standards that we are asking them to adhere to.

Iacurci: Why is it getting more popular?

Stuart: Yeah. So, it's getting more popular because with the internet and with social media, people are much more aware of the world that's around them and they're much more aware of the environmental problems that we are facing. And people are realizing that their values are important, and that they have much more of a voice than they probably ever thought they did.

Iacurci: Why do young people like ESG?

Stuart: Yeah. Young people like ESG, because in school and on social media, they learn a lot more about the environment around them, and they want to make sure that they're going to grow up in a world where we still have polar bears, we still have gorillas, where it's still a nice place to be. And also, they know how difficult it will be to fix in the future if we don't act now.

Iacurci: Thank you, Elizabeth. Goodbye.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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