Effects of Environmental Issues

Want Your Investment to Be Responsible? Here's How PART 3 OF 15

ESG criteria

In the previous article, we noted that socially responsible investing is done on the basis of environmental, social, and governance (or ESG) criteria. Analysts look at the operations of a company from these three perspectives to evaluate its standing among its peers.

Given their mandate, analysts use different strategies to invest in companies when making use of ESG criteria. It’s important to note that a given issue can’t strictly be classified as either environmental, social, or governance-related.

Environmental issues

Some issues considered under the environmental criterion when evaluating a company’s products and practices are:

• pollution
• carbon emissions
• greenhouse gas emissions
• resource depletion
• climate change
• hazardous waste disposal
• toxic chemical use
• deforestation

These and other environmental issues can be considered both as opportunities as well as threats. For instance, climate change can be a threat to a product a company is selling. If that product forms a large part of the company’s sales, then its profits will be hurt in the future if it doesn’t devise a strategy to deal with its product mix.

Meanwhile, if a company is in a niche segment of hazardous waste disposal, a rise in such waste—which we’re experiencing presently—would be a boon for such company and its valuation.