Gone are the days when investors considered a company’s or asset’s profitability to make decisions. Investors now consider various financial metrics and factors to make decisions. Besides the common financial factors, investors now consider ESG (Environmental, Social, and Governance) factors.
Different sectors have become more responsible since the United Nations launched the SDGs (Sustainable Development Goals). The investment sector, in particular, is eyeing ESG investing, a more sustainable and responsible option. Many reputed third parties are helping investment firms to adapt to the changing ESG landscape.
Let us discuss some Sustainable Finance Solutions for the evolving ESG landscape in this blog.
What Exactly is Sustainable Finance and ESG?
Sustainable finance, or green finance, is investing in sustainable companies, ventures, or assets. It refers to making sustainable investments that can offer long-term returns. Investment decisions in sustainable finance positively impact the environment and society. You can support sustainable development by investing in a company involved in renewable energy production. Institutional and individual investors use ESG factors to find sustainable investment opportunities. Energy efficiency, water management, employee well-being, community engagement, board diversity, and ethics are a few ESG factors investors use to make informed decisions.
Popular Sustainable Finance Solutions for Investors
Individuals, institutional investors, and corporations depend on reputed third parties for ESG research and decision-making. These third parties present various sustainable finance solutions for investors to adapt to the evolving ESG landscape. Here are some popular solutions:
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ESG Analytics
Many research firms are helping investment firms make use of ESG data. Most investment firms need help finding relevant ESG data for research. For example, an institutional investor might need help finding the carbon emissions of public companies in a country. Sustainable finance solutions include the accumulation of relevant ESG data. Once relevant data is collected, third parties offer ESG analytics solutions. They use the available ESG data to generate insights. Investment firms get these insights through reports, commentaries, or newsletters.
ESG Scoring and Rating Solutions
Institutional investors, HNIs, UHNIs, and corporate entities depend on companies’ ESG scores to make investment decisions. A company’s ESG score depends on employee policies, social contribution, carbon emissions, and many other factors. Automated ESG scoring models are now available for investment firms. The model requires training and maintenance to produce accurate results in the long run. It is where an investment firm requires support from an experienced third-party research firm.
ESG-Centric Indices
Many research firms offer ESG-centric index services. Both institutional and retail investors use ESG-based indices. These benchmark indices help investors with comparative analysis. Investors can compare the performance of their sustainable investments with these indices. Some corporations also track ESG-themed indices from reputed sources for long-term returns. You can also find mutual funds, ETFs, and other investment products linked to ESG-themed indices.
ESG-Themed Financial Products
Investor inclination towards ESG has led to the development and emergence of new investment products. Corporations usually partner with third parties to discover ESG-centric financial products. Many institutional investors depend on investment banks to discover ESG-centric investment products. Retail investors usually depend on fund houses and trading firms to invest in ESG-linked financial products. Fund houses and trading firms again depend on third parties to create effective ESG-linked financial products.
TPI-Centric Solutions
Many investment firms depend on TPI to make informed, sustainable finance decisions. TPI (Transition Pathway Initiative) is a popular global initiative for decarbonization. TPI ranks different organizations based on their progress towards a low-carbon economy. It also offers insight into the decarbonization status in different industry sectors. Third-party research firms can help corporations integrate TPI into their decision-making.
Portfolio Assessment Solutions
Portfolio assessment solutions are also available for investors. One can check the alignment of one’s portfolio towards ESG norms with assessment services. Expert professionals can help rebalance your portfolio to meet ESG norms and avoid risks.
Conclusion
With the evolving ESG landscape, more investors are moving towards sustainable opportunities. Individuals and corporations can depend on research firms to gain access to ESG insights. ESG scoring, risk analytics, portfolio analytics, and other solutions are available for investors. Make the most of sustainable finance solutions.
