In June 2020, e-tailer Amazon set up a $2 billion fund to invest in technologies that will help companies reduce their carbon footprint and become net-zero in carbon output. The fund is another step the company has taken after experiencing employee dissatisfaction over its huge environmental footprint. Amazon also launched a new website where anyone, including investors, customers and employees, can track the company’s sustainability commitment progress.

“We decided to use our size and scale,” said Jeff Bezos, the founder of the e-commerce company. Year- 10 years ago the Paris Agreement can be completed, then any company can.”

Tech giant Google, too, announced its plans to grow the global wind and solar power portfolio by more than 40% to 5,500 megawatts (MW) in 2020. It is said to be the biggest corporate purchase of renewable energy.

These are examples of companies attempting to portray themselves as socially invested entities.

Investors around the world are no longer passive participants. With better and faster access to information, corporate, economic, social and political events have an almost immediate impact on investor sentiment and resultant investor behavior. In addition, consumer as well as employee behavior has changed, expanding the traditional meaning of ethical investing.

Originally, ethical investing meant ‘sin’ relating to not investing in companies or stocks, i.e. businesses that involved alcohol, gambling, or weapons. But the term now has a much wider meaning and no company, no matter how big, can ignore investor sentiment in this regard.

Industries that have made a positive impact in areas such as sustainable energy, recycling, pollution control, health care, gender diversity, education, and others resonate well with socially conscious investors. Of course, with giving returns. More and more investors want to invest their money in stocks or funds that not only show profit but are also in line with their societal values.

Given the broad definition of ethical investing, new related terms have emerged – socially responsible investing (SRI), impact investing, sustainable investing, green investing, and environmental, social and governance (ESG). ESG, in particular, has become an influential factor in companies’ capital expenditure strategy and bottomline.

Indian companies are also aware of the need to communicate a positive impact. Indian startup Mama Earth Naturals makes personal care products, which it advertises in TV commercials. There is nothing unusual in this. The different thing is that at the end of the commercials “…and trees grow too (…and they plant trees too).” Apart from this, the company plants a tree for every order placed on its website.

The Delhi-based company is not the only one actively communicating its social initiatives. Over the years, banks, steel companies, FMCG majors and many others have been pushing their socially relevant programmes. Recently, the popular drink Thums Up has been airing two TV commercials – one featuring actor Salman Khan and focusing on the refreshing taste of the drink while the other narrates the story of Indian sportspersons’ struggles.

Shiv Nadar, founder of $10.5 billion tech giant HCL Technologies and Shiv Nadar Foundation, said, “I admire companies that give back to communities. It is absolutely essential for organizations to see, reduce and improve their impact on the environment, people, communities, their health and overall well-being. It is a necessary condition, not a sufficient condition.”

Fringe to Mainstream

Through what lens do investors judge companies when they are looking for ethical investments? There are various ways to go about it. Some include only those investments that have a positive impact and some exclude negative-impact investments. Some use both methods. Investopedia states that ESG looks at a company’s environmental, social and governance practices alongside more traditional financial measures, while SRI involves actively removing or selecting investments based on specific ethical guidelines. Impact investment helps a business to accomplish a project or develop a program or do something positive to benefit the society.

Climate change is a matter of grave concern to all and even becoming a part of political promises is likely to give a further boost to the ESG Fund. According to Morningstar, the ESG fund raised $51.1 billion in net new money from investors in 2020, a record and more than double that from the previous year. This was the fifth consecutive annual record. In 2019, investors poured about $21 billion into the ESG Fund.

According to a 2020 survey by the US Forum for Sustainable and Responsible Investment, SRI and impact investing accounted for more than $1 out of every $3 under professional management in the US.

Such evidence clearly indicates that ethical investing is no longer a fringe trend but a mainstream factor that is likely to acquire more investors in the future as well.

Disclaimer: Content Produced by ET Edge