Yes, it does. ESG investing, often referred as sustainable investments, can ultimately deliver aspects of both worlds — save the planet and potentially deliver financial performance. For decades, human activities have been blamed for harming our environment, wildlife, and climate. With ESG investing, we can play more active roles in solving these environmental and social issues.
While some investors are skeptical of ESG factors that may compromise profits, research finds that ESG investments can really help the environment while potentially delivering financial returns. One analysis compared two Asian credit indexes and found the index with ESG investments emitted less carbon footprint than the traditional, non-ESG credit index.
Some companies are tapping into the rising demand for green finance and impact investing by issuing green bonds to finance climate-related projects. Green bonds, for example, can help reduce carbon emissions to improve air quality. The first green bond was issued in 2007 and the green bond market has grown significantly since, to include a variety of sectors looking to raise capital from ESG-conscious investors.1 In the past, there have been green bond issuances from Chinese banks, for instance, to support bank’s effort to mitigate the effects of climate change. The uses of proceeds for these bonds could be directed to eligible projects that meet Green Bonds Principles and Climate Bonds Standards.2
Investing in ESG-oriented companies (those with sustainability plans and objectives) can potentially help the environment and mitigate climate change. For example, some companies have set goals to reduce electricity consumption by replacement with renewable power generation. Other companies may have set reliance targets on renewable energy across its operations and lowering its direct and indirect emissions or reduce CO2 emissions across its value chain in line with a 1.5 °C global warming scenario.3
Finally, here are some of the main ways to assess the environmental impact of investments: find forms of evaluation and measurements and ask questions on companies adhering to best practices in disclosure and reporting. Investors rely on consistent, financially material information on climate-related risks and opportunities to make investment decisions.2 Standardizing this disclosure is a goal of the Task Force on Climate-related Financial Disclosures (TCFD). One of the requirements set by the TCFD involves scenario analysis, encouraging companies to estimate the financial impact on their business as we transition to a lower-carbon economy. Companies that follow TCFD framework can help investors to assess this impact more accurately.
1 Manulife Investment Management, “The ABCs of ESG”, 16 June 2022.
2 Manulife Investment Management, “Preparing for the low-carbon transition”, 4 May 2021.
3 Manulife Investment Management, “Real world decarbonization: identifying future leaders in the low carbon transition”, November 5, 2021.