Value investing and environmental, social, and governance (ESG) investing appear to be two different sets of investing, yet many investors are beginning to combine the two. At first glance, some may feel the two concepts contradict each other. However, ESG investing is gaining traction due to its focus on sustainable growth with a smaller environmental footprint.
At its core, value investing is still focused on a company’s fundamental outlook. Yet, more and more investors believe that assessing a company’s ESG score is vital to the future of a successful business. With this, they are seeking to capitalize on companies that prioritize corporate sustainability and sound environmental practices.
A lasting impact beyond financial gain is the goal when it comes to ESG investing. Investors are looking at this type of investing as a way to build relationships and trust with stakeholders. Companies that take ESG issues into account and practice sustainable growth are setting themselves up for a secure long-term future.
Only by taking a holistic view of the investment opportunity can investors create a portfolio that considers both a company’s financial and sustainability aspects. An ESG score is calculated using data from sources such as environmental reporting, human rights reporting, or a company’s workforce diversity. By assessing the overall rating when looking at potential investments, it is possible to balance the asset’s current value with the expected long-term performance.
A successful long-term investment strategy coherently reflects ESG analysis as well as fundamental value investing. By taking both aspects of investing into consideration, investors can continue to build their portfolios and reduce their investment risks. It may not be immediately obvious how ESG investing and value investing relate to each other, but investors now understand that their success is dependent on balancing environmental performance with the stock‘s short-term and long-term financial outlook.