An investment is sustainable and responsible if it takes into account not only financial factors but also ESG criteria: environment, social and governance.
Attention is steadily growing towards a different, ethical and sustainable way of approaching investments. Not least because it is impossible to deny that, particularly in recent years, the world of economics and finance has seen events that are at times even alarming for the general public. An ever greater need has arisen to clarify the concepts linked to social responsibility and the sustainability of investments.
For this reason too, the Forum italiano per la finanza sostenibile has proposed a concise definition of sustainable and responsible investment: "An investment strategy oriented towards the medium-to-long term that, in the assessment of companies and institutions, integrates financial analysis with environmental, social and good governance analysis, with the aim of creating value for the investor and for society as a whole". In technical parlance, these are known as ESG criteria – Environmental, Social and Governance (environment, social and governance). Let us examine this acronym in detail.
The specifics are set out by the UN PRI (United Nations Principles for Responsible Investment). The initiative was born in 2005, when the then United Nations Secretary-General Kofi Annan asked the world's largest investors to develop principles for responsible investing. To date, 1,500 investors have joined the initiative, voluntarily committing to follow its principles.
The first element of the triad "environment, social and governance" is that of the environment. The first question asked is whether the economic entity in which one wishes to invest capital is structurally dependent on fossil fuels, whether it has a high water footprint, whether it has been complicit in deforestation, and whether it disposes of waste correctly.
The second dimension is the social one: what are the working conditions of employees? The factors that bear on this assessment are any conflicts with the local community, attention to workplace safety and health, the protection of diversity, and correct interpersonal relations among employees.
Moving on to the final piece, that of governance, it is necessary to check whether executives pocket outsized bonuses disproportionate to employees' salaries; whether the company has ever been involved in corruption scandals; and whether it has opened offshore branches for the more or less openly declared purpose of tax avoidance.
Incorporating ESG criteria into one's investment decisions can translate into the exclusion of sectors such as tobacco, gambling or cluster munitions. But that is not all. It means avoiding becoming complicit, more or less directly, in violations of workers' rights and serious harm to the environment and to communities. It also means understanding that, at the moment one decides to invest in another entity, it is not possible to limit the assessment solely to its financial performance. Because if that performance has been achieved by trampling on workers' rights, harming the environment or evading taxes, in the medium-to-long term the price will inevitably be paid. A price that, more often than not, is quite steep.