ESG practices proving to be an increasingly important investment factor

Investors today are increasingly eager to tie their money to major issues that could lead to a fairer and more equitable planet, says Damian Hitchen, CEO of Saxo Bank MENA.

Making investments based on ethical views in the region isn’t a new phenomenon, he explained. Shariah-compliant funds, for instance, have been available to investors for more than half a century. “As efforts are made to create a fairer, more sustainable world in the face of climate change, social inequality, and other pressing global issues, we are seeing a new wave of socially responsible financing. Even before the Covid-19 pandemic, we had noted a change of mindset: since 2012, we have seen a 60 per cent increase in ethical investment, emphasising a behavioural shift among investors even pre-pandemic.”

He explained that the trend towards impact investing – generating financial returns while creating a positive social or environmental impact – has seen investors take a much closer look at bigger issues such as conservation, while also scrutinising companies’ general practices and commitment to corporate social responsibility.

Women, he added, are also playing a big role in this trend. “At Saxo Bank, we witnessed a 150 per cent increase in new investors recorded across the region in the past two years, and a rise in female investors with women now making up 18 per cent of new clients in 2022. More than ever before, female investors are choosing to enter the capital markets and fulfil their financial aspirations, making a genuine impact for themselves, the world, and the communities around them.”

Increasingly, this new breed of investor is looking to adopt a more sustainable investment approach, consistent with their values. One way in which they can do this, Hitchen revealed, is by checking on the environmental, social, and governance practices (ESG) of companies they are considering investing in. “In our hyperconnected, modern world, it is easier than ever to scrutinise companies and find brands that match positively with such practices and align with an investor’s worldview.”

Environmental factors are essentially anything associated with a company’s impact on the planet. It could be its adoption of clean energy or a commitment to lowering its carbon footprint. Social factors meanwhile focus on a company’s treatment of its employees, suppliers, and community within which it operates, therefore encompassing issues such as worker health and wellbeing, gender diversity, advertising practices, and even cybersecurity and data protection. Lastly, governance factors are related to more general business ethics, transparency, and board composition.

Hitchen noted that ESG can be seen as an additional layer of due diligence on behalf of an investor as such companies generally lower costs through better use of resources, less operational and reputational risks, and the potential of reaching a larger customer base. Modern day investors then are better empowered and informed courtesy of the resources available to them online.

“Saxo Bank offers a wealth of information that can help potential investors navigate the world of ESG and socially responsible investment. We provide integrated packages of products, exchange-traded funds, mutual investment funds, and other assorted information to ensure the investor gets the best possible vantage point,” he said.

Impact investments can make financial returns while also creating measurable social and environmental impact, he added. “By interlinking investment with capital, it is possible to address some of the world’s most pressing challenges, including renewable energy, as well as sustainable practices in agriculture, finance, healthcare, housing, and more even while looking to turn a profit.”

“Investors have realised that not only can their decisions make a difference, but they can make solid, sound investments while still staying true to their ethical beliefs,” Hitchen said. “In doing so, not only will their bottom line likely improve, but so will society and, ultimately, the planet.”

rohma@khaleejtimes.com