Sayings like “money can’t buy happiness” and other quotes give money a bad name. But if money is put to good use, through investments in responsible companies for example, it can have a positive impact on a community and beyond.  This blog post will serve as an introduction to ESG investments and how they can lead to positive peace. 

What Does ESG Mean?

Socially Responsible Investing (SRI) is an ethical or moral based investment strategy. Building off of the concept of SRI, ESG is a set of criteria that helps determine the impact of an investment on a community, as well as predicting the potential financial gain for the company and investor. ESG stands for Environment, Social and Governance, which are the three general categories that can help evaluate the impact of an investment on environmental issues, social issues, and governance or policy. 

According to a Forbes Magazine article, “The rise of ESG investing can also be understood as a proxy for how markets and societies are changing and how concepts of valuation are adapting to these changes.” ESG investing has been on the rise since it’s 2005, and will only continue to grow as issues such as climate change become more and more prominent. In fact, another source from CNBC claims that ESG investing could double in 2020 despite economic struggles. 

Company ESG impact is rated on an AAA to CCC scale; AAA being the best, then AA being second best, then A, BBB, BB, B, and CCC being the worst ESG impact a company can have. of October 2019, some well-known, high ESG scoring companies include: 

• Edwards Lifesciences (AA)

• Microsoft (AAA)

• Home Depot (AA)

• Texas Instruments (AA)

• Alphabet (Google) (AA)

How Does ESG Influence Peace?

Positive Peace is the creation of positive social behavior peace through positive actions, interactions, or innovation. As a set of factors that influence the future impact of an investment on environmental, social and governance issues, ESG scores inherently have the potential to influence positive peace. The act of investing in a company  with high ESG scores is an action that promotes positive peace by supporting organizations that are transparent and will better serve the environment and community. 

According to another Forbes Magazine article, an upcoming Sustainable Development Goal (SDG) #16 for the United Nations is for businesses to view their decision making and development through the lens of peace and justice. Furthermore, this SDG includes having holistic transparency and accountability from institutions, and more diverse and inclusive decision-making efforts.

Once an informed and socially responsible investment has been made in a company based on ESG ratings, it’s a domino effect from there. In a CNBC “ETF EDGE” interview, Head of ESG product strategy at S&P Dow Jones Indices, Mona Naqvi, says that “ESG is ... the toolkit to allow us to do that and make sure that companies are held to account and we actually have some ability to influence them through our investments.” As Naqvi suggests, investing in high ESG scoring companies  will not only improve the impact that they have on the environment and communities, but also encourage companies to be better. If company ESG scores are becoming increasingly important to investors, companies will in turn improve their own ESG ratings and inherently improve their impact.

ESG investing influences positive peace by allowing investors and corporations to contribute to positively impactful companies, while also allowing companies the opportunity for positive change in order to increase their positive impact and ESG scores. While environment and governance impact can be more easily measured, social impact is a bit more difficult to measure and standardize. 

In order to create a more quantifiable and standard social impact rating, the Peace Innovation Institute has created the Hague Peace Data Standard (HPDS) using peace data from social interactions. The HPDS takes positive peace a step further by providing companies and investors with a powerful referencing tool.

Why ESG Investing is more important than ever

ESG factors are only becoming more and more crucial in today’s world, especially with issues such as climate change and social injustices becoming more prevalent. As these issues increase exponentially in importance, companies must follow suit and adjust to have the highest possible positive impact. Being able to improve their impact will not only attract more consumers, but also attract investors and can ultimately lead to financial successes for all parties involved.

Researching ESG scores is extremely valuable for stakeholders, investors, company heads, and anybody interested in where their money is going. Being informed of these scores as a consumer will help you support the right companies, as well as align with your own values as you buy these goods and services. 

ESG factors have grown exponentially important in the past decade, and will only continue to grow as investors, companies and consumers actively react and respond to these environmental, social and governance issues. Through ESG ratings, these groups can make educated decisions on who to give their money to for the most positive impact on these factors. The HPDS provides an additional tool for these groups to quantify and evaluate a company’s social impact on positive peace. 

To read more about the relationship between ESG, positive peace and the HPDS, head over to our “Making Peace Profitable: How Peace Data can improve your bottomline” PII post here