What is ESG? Everything you need to know to invest with impact

In the quest to address social and environmental needs, investors are turning to ESG projects that offer sustainable and innovative alternatives. That's why start-ups, established companies, and well-known brands around the world are taking a stand on environmental responsibility. But what is ESG? 

ESG refers to environmental, social, and governance issues. por sus siglas en inglés. Son precisamente estos tres factores los que consideran los fondos a la hora de invertir en una empresa. Los criterios ESG ponen en manifiesto que, poco a poco, se suman métricas  que agregan un gran valor para el inversionista que busca hacer un cambio.

As the demand for answers to global environmental and social challenges increases, technology is becoming a key ally in creating cost-effective and sustainable products and services.

Sustainable investing is growing every day. Last year alone, los fondos ESG registraron un total de 649 mil millones de dólares, un nuevo récord al aumentar 107 mil millones en comparación a los 542  mil millones de dólares del 2020, according to the 7th, edition of the ESG Investment Observatory, conducted by the Club of Excellence in Sustainability in partnership with IE Business School. Georgeson and Endesa.

You can also read Sustainable investment to make its mark on the Venture Capital industry

What is ESG?

ESG criteria are the factors that funds and investment managers consider when making sustainable investments. Through these factors, it seeks to encourage the development and growth of companies that aim to solve the problems currently faced by the world's population. ESG offers a new perspective on investing.

Los criterios ESG  ofrecen una nueva perspectiva para invertir. Durante el 2020, Statista surveyed sustainable investors and nearly 90% of respondents said they focus on the environmental factor, 52% on the social aspect, and 60% on the governance aspect. 

ESG criteria are: 

  • Environmental
  • Social
  • Corporate Governance..

Aquí te contamos de qué trata cada criterio Inversiones sustentables ganan terreno en el mercado

What is Triple Impact Investing?

Although very similar, the concepts of ESG and triple impact are not the same.he latter refers to companies that seek to be profitable based on three aspects:

  • Social: it has to do with the company's compensation policies, employee benefits, work environment, ethics, and transparency in the company.
  • Environmental: the adoption of policies by the company to reduce its impact on the environment.
  • Economic: refers to the ability to generate income without polluting the environment or violating workers' labor rights.

Circular economy

The environmental crisis we are currently experiencing requires options and responses to protect the planet. In this context, investors are turning their attention to companies that implement ESG criteria. This situation motivates companies to adopt strategies, such as the circular economy, that take environmental risks into account.

The circular economy model is an option to deal with the environmental impact,the scarcity of natural resources, and the generation of waste generated by different industries. It is based on producing the minimum, using biodegradable materials in production as much as possible, and reusing anything that cannot be returned to the earth.

Conoce más sobre Economía circular, alternativa con potencial para invertir

Technology as an enabler of ESG criteria

Technological progress is an undeniable ally in providing solutions to the social and environmental needs we are currently experiencing. Certainly, the application of technology in different industries and companies allows, among other things, the optimization of processes, which creates room for cost reduction.

Likewise, echnology offers alternatives for environmental protection, such as the regulation of energy consumption; and the care of forests through drones; the cloud, databases, or artificial intelligence (AI) are options for companies to implement remote work, which helps with pollution, paper use, and other aspects. 

Technologies that enable environmental sustainability

En el estudio elaborado por  IBM Institute for Business Value, The Growth of the Sustainable Enterprise. Using Digital Technology to Respond to the Environmental Imperative,identifies six exponential technologies that will enable environmental sustainability: 

Artificial Intelligence

  • Learning algorithms to improve environmental models.
  • To optimize resource consumption and business processes while reducing pollution.
  • Improving and refining responses to environmental problems.

Advanced analytics

  • Process large volumes of data.
  • To redefine operations and supply chains to reduce environmental impact.

5G and mobile technologies

  • To connect communities interested in finding innovative solutions to new environmental goals.
  • For faster and more secure connectivity and sharing of data and insights.

Hybrid multi-cloud

  • Integrating data across a large ecosystem allows reliable insights to be generated at a faster speed, resulting in more accurate environmental modeling.
  • It supports the seamless integration of complex data into public and private or cloud-managed services.

Internet of Things (IoT)

  • Devices provide accurate data to optimize processes and reduce environmental impact.
  • It can balance the use of renewable and flexible energy sources.
  • Trigger alerts to mitigate and manage environmental issues.

blockchain

  • Balance the use of renewable and flexible energy sources.
  • It can track and authenticate provenance, resource use, pollution, and transactions in a supply chain.
  • Helps meet regulatory requirements, enabling more efficient emissions trading schemes.

Learn more about the Tendencias tecnológicas que transformarán este 2022

Technology support is essential to achieve sustainability in corporations, emerging companies, and ventures, and to meet the ESG agenda sought by funds and investment managers.  

Technology is also being used to develop tools to assess sustainability factors in companies. A leading example is EcoVadis, a provider of easy-to-use corporate responsibility ratings that include a detailed view of environmental, social, and ethical risks, features that allow sustainable companies to be rewarded. 

Investing for Impact

Esta inversión This type of investment is designed to have a positive social and environmental impact. It is called impact investing, according to the Global Impact Investing Network (GIIN). (GIIN).

Impact investing focuses on projects that are sustainable or meet ESG criteria. They must strike a balance between financial profitability and positive social and environmental impact.  

Drivers of impact investing: 

  • Innovative trends in the sector
  • Making an impact on developing communities and the environment
  • Stimulating research to reduce environmental impact and develop communities.
Escucha nuestro webinar, Inversión en impacto social con capital privado

Private Capital as a driver of triple-impact projects

Investment in sustainability and triple-impact projects is growing within private capital. As a result, socially and environmentally responsible companies represent value for investment funds that want to be part of the change. 

Tan solo en Estados Unidos, la gestión de activos ESG por parte de compañías de capital privado aumentó alrededor de los 5 mil millones de dólares, entre 2018 y 2020, y en la actualidad se estima que la inversión con impacto en el mundo se encuentra en torno a los  715,000 millones de dólares, según el informe Global Private Equity Responsible Survey 2021 of PwC

Profitability of investing in a social project

Several venture capital funds around the world specialize in sustainability investments. Impact investments have different return expectations. A competitive and above-average return is possible, although sometimes investors choose to include these projects because of their social and environmental impact.

Over the past two years, this type of investment has generated returns of between 8% and 13% in emerging and developed markets. In the first quarter of this year, it even reached double the total capital registered in the first quarter of 2020. And it was the fifth-best quarter, according to GIIN data.

In 2020, ESG investors will focus on sustainable infrastructure projects, according to a statista survey: 

  • Water and wastewater infrastructure
  • Zero-emissions energy such as wind, solar, and hydroelectric power energía eólica, solar e hidroeléctrica
  • Low-carbon hydrocarbon energy

Conoce los Motivos de la importancia de invertir en sustentabilidad

Diversificar la estrategia de inversión e incluir proyectos en sostenibilidad es el primer paso para realizar inversiones de impacto. Por esa razón, dentro del portafolio de WORTEV CAPITAL se encuentra T-Sobra, empresa mexicana dedicada a la recolecta de residuos orgánicos para transformarlos en composta. 

En WORTEV CAPITAL, somos un fondo de capital emprendedor en la que nuestro principal objetivo es  impulsar el crecimiento financiero y operativo de emprendimientos innovadores, a través de la primera aceleradora nuclear de empresas que se integra en la operación de sus áreas estratégicas.