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ESG Investing, the Surge and the Critisism

ESG Investing refers to investing which prioritizes optimal environmental, social, and governance (ESG) factors or outcomes. Also known as “socially responsible investing,” “impact investing,” and “sustainable investing”, ESG investing is seen as investing “sustainably”. ESG Investments are made with consideration of the environment and human wellbeing, and the economy. It is based on the fact that the financial performance of organizations is increasingly affected by environmental and social factors. More and more investors are looking to fund companies that support and promote sustainability, and comply with emerging regulations such as climate change regulations. This demand has been met with high traction on ESG issues in the business world, as well as higher returns on investment for ESG funds due to their resilience against conventional market disruptions. Portfolios incorporating ESG and sustainability also frequently perform better in the long-term than those that don’t. Shareholders and stakeholders expecting a continuous and progressive movement towards more environmentally, socially, and economically sustainable businesses to support the future generations.

The surge in ESG investing can be attributed to a range of factors. As supply chains become more complex, there is a wider awareness of social, labor, and human rights issues and risks for the business world. Growing concern for environmental issues such as climate change also influence investor decisions.
ESG issues cover a variety of topics that are applicable to all industries and organizations in one way or another. ESG investing entails a broader scope of issues, including: Environmental: Climate change, Greenhouse gas (GHG) emissions, Resource depletion, Waste and pollution, Water and energy efficiency, Deforestation, Biodiversity Social: Working conditions, Equal opportunities, Human rights, Employee diversity, Health and safety, Child labor and slavery, Community engagement, Philanthropy Governance: Business ethics, Executive pay, Board diversity and structure, Bribery and corruption, Political lobbying and donations, Tax strategy. Compliance

**ESG Investing Criticism ** ESG investing, which considers environmental, social, and governance factors, has faced some criticism in recent months. Not all ESG factors are easily quantifiable, and such factors may not directly translate into earnings growth or enhanced performance for the organization. Current corporate sustainability policies are heavily skewed towards process and procedures and tend to miss out on the actual performance of the organization. Investors can review companies' ESG disclosures, but they also typically want to access information that is not reported, and that leads to ESG controversies. These controversies could include toxic waste spills (environmental), human rights violations (social), or corrupt CEOs (governance). That said there are ways to overcome these challenges. Given both the scenarios, the surge in ESG Investing and the criticism that follows, the finance world is often left wondering if planting more trees and reducing carbon footprint be more socially responsible than ESG Investing.

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