Recycling and waste reduction
According to the Ellen MacArthur Foundation (EMF), just 14% of the plastic packaging used globally makes its way to recycling plants, while 40% ends up in landfill and a third in fragile ecosystems.
Investing in companies that reduce the number of new products and amount of new materials produced by recycling existing products and packaging, combined with effectively managing waste and reducing landfill, you can have a meaningful positive impact on reducing; soil contamination, climate pollution, air contamination, water contamination, harm towards animal and marine life and human damage.
Companies that recycle and reduce waste also tend to be more responsible, profitable and less likely to be subject to fines and the damage to their public image.
Community development
Community development is the partnership between organizations and communities to provide people with the means to affect positive change in their own lives.
Community development in ESG investing is the practice of investing in companies and organizations that are working to improve the lives of people in their communities. This can include companies that are providing jobs, affordable housing, and other essential services to underserved communities. It can also include companies that are working to protect the environment and promote sustainability.
There are a number of reasons why investors might choose to invest in community development. Some investors believe that it is the right thing to do, while others believe that it can be a profitable investment. There is evidence to suggest that companies that are committed to community development can be more successful in the long run
Human rights and employee conditions
Human rights and employee conditions are relevant to the financial, social and environmental aspects of all corporate activities.
Labor rights drive fair wages, non-discrimination drives equality, human rights drive a variety of things such as the right to clean drinking water and employee conditions ensure safety and fairness.
There has been a 70% increase in human rights violations globally since 2008 (Human Rights Risk Atlas). Abuses such as slavery, land grabs and trade in conflict minerals, compromised workers’ rights and rural and indigenous communities facing land forced displacement.
Supporting the right companies that play their role to protect their employees as well as the human rights of everyone linked to their business at home, abroad and throughout the entire supply chain can have a serious impact.
Corporate transparency
Corporate transparency, or corporate honesty, is all about how honest a company is, how well it’s being run, how much money it makes and how it adheres to its sustainable commitments.
Said to be the “best long-term indicator of healthy corporate performance,” (Evan Harvey, Director of Corporate Responsibility for Nasdaq). Transparency drives improved sustainability, customer loyalty, trust and value.
Protection of natural environment
The EU has set a vision for 2050 of ‘living well within the limits of our planet’.
There are a number of ways that investors can protect the natural environment through ESG investing. One way is to invest in companies that are working to reduce their environmental impact. This can include companies that are developing renewable energy sources, reducing their carbon emissions, or improving their water efficiency. Another way to protect the natural environment through ESG investing is to invest in companies that are working to conserve natural resources. This can include companies that are replanting trees, protecting endangered species, or reducing pollution.
There are a number of reasons why investors might choose to protect the natural environment through ESG investing. Some investors believe that it is the right thing to do, while others believe that it can be a profitable investment. There is evidence to suggest that companies that are committed to environmental protection can be more successful in the long run.
Animal welfare practices
Animal welfare practices in ESG investing is the practice of investing in companies that have high standards of animal welfare. This can include companies that do not use animals in their products, companies that treat animals humanely, and companies that support animal welfare organizations.
There are a number of reasons why investors might choose to invest in companies with high standards of animal welfare. Some investors believe that it is the right thing to do, while others believe that it can be a profitable investment. There is evidence to suggest that companies that are committed to animal welfare can be more successful in the long run.
Diversity and equality
Ensuring gender diversity, equality, equal pay, employee and community rights through transparent policies and business practices.
On average in the USA, women earn 20% less than men (Pew Research). Around the world, its estimate that less than 15% of board seats are held by Women (Credit Suisse).
With 10% of the world’s 3bn workforce employed by multinational businesses, supporting the ones that are leading change will influence the world.
Companies that are more diverse and have more women on the board have been proven to have higher productivity, higher investment returns (3% on average – Sustainalytics) and lower investment risk.
Renewable energy and clean tech
Renewable energy and cleantech are two important aspects of ESG investing. Renewable energy refers to energy sources that are not finite, such as solar, wind, and hydroelectric power. Clean tech refers to technologies that reduce pollution and environmental impact, such as energy-efficient appliances and vehicles.
Pollution is one of the world’s biggest environmental problems. It’s a typical by-product of modern life. Air pollution is the result of fossil fuel combustion, as well as various gasses and toxins released by industries and factories.
The costs of pollution go beyond medical bills and loss of productivity. Heavily polluted areas make it difficult for companies located there to hire and retain workers, forcing them to pay higher wages to attract and keep employees. In addition, unchecked pollution can temper investors’ interest.
Supporting clean companies can also be a better investment. According to Clean 200, companies that limit Air pollution and C02 emissions outperform those that don’t by 15%, and with less risk.
Sustainable corporate policies
Sustainable corporate policies are the practices and procedures that a company implements to minimize its environmental impact and promote social responsibility. These policies can include things like reducing greenhouse gas emissions, using sustainable materials, and promoting diversity and inclusion in the workplace.
Strong sustainable policies results in change and leadership across a swathe of environmental, social and ethical issues.
Our own research shows that companies that have strong sustainable policies and perform well in executing and adhering to these policies, drive higher investment returns as well as lower investment risk.
Tobacco
Tobacco is a controversial industry in ESG investing. Some investors believe that it is unethical to invest in companies that produce tobacco products, as tobacco use is a major cause of death and disease. Others believe that tobacco companies can be profitable and sustainable businesses, and that investing in them can be a way to promote positive change in the industry.
Smoking is the leading cause of preventable death. Worldwide, tobacco use causes nearly 6 million deaths per year (CDC).
Animal testing
Animal testing is the use of live animals to test the safety and effectiveness of products such as drugs, cosmetics, and household chemicals. It is a controversial practice, with some people believing that it is cruel and unnecessary, while others believe that it is essential to protect human health and safety.
In ESG investing, animal testing is often considered a negative factor. Investors who are concerned about animal welfare may choose to avoid companies that test on animals.
Each year, more than 100 million animals—including mice, rats, frogs, dogs, cats, rabbits, hamsters, guinea pigs, monkeys, fish, and birds—are killed in U.S. alone. Killed for biology lessons, medical training, curiosity-driven experimentation, and chemical, drug, food, and cosmetics testing. (Peta)
Fossil fuels
Fossil fuels are a type of energy source that is formed from the remains of ancient plants and animals. They include coal, oil, and natural gas. Fossil fuels are a major source of energy for the world, but they also have a number of negative environmental impacts. They are a major contributor to climate change, and they also pollute the air and water.
In ESG investing, fossil fuels are often considered a negative factor. Investors who are concerned about the environment may choose to avoid companies that extract or use fossil fuels. There are a number of ESG funds that screen out companies that are involved in the fossil fuel industry, and there are also a number of individual stocks that are considered to be fossil fuel-free.
There are a number of alternatives to fossil fuels, such as renewable energy sources like solar and wind power. These alternatives are becoming increasingly affordable and efficient, and they are a good way to reduce environmental impact.
Ultimately, the decision of whether or not to invest in companies that are involved in the fossil fuel industry is a personal one. Investors should carefully consider their own values and goals before making a decision.
Fossil fuels produce 65% of the Green House Gases in the form of C02 that cause global warming i(EPA). Beyond the resulting air pollution which kills over 7 million people each year (WHO), their production also contributes to the 2.5b people suffering water stress, as well as produces the waste that destroys land and marine habitats.
However, Fossil fuels are a major source of energy for the world. Investing in fossil fuel companies can be a way to profit from the transition to a low-carbon economy and many fossil fuel companies are working to reduce their environmental impact.
Stem cell research
Stem cell research is the study of stem cells, which are undifferentiated cells that have the potential to develop into a variety of different cell types. Stem cell research has the potential to develop new treatments for a variety of diseases, including cancer, Alzheimer’s, and Parkinson’s.
In ESG investing, stem cell research is often considered a positive factor. Investors who are concerned about the potential of stem cell research to improve human health may choose to invest in companies that are involved in stem cell research.
However, stem cell research is a controversial topic, and there are some investors who are opposed to it on ethical grounds. Some people believe that stem cell research is morally wrong because it involves the destruction of embryos. Others believe that stem cell research is not yet safe or effective enough to justify the use of embryos.
Predatory Lending
Predatory lending is a type of lending that targets borrowers who are likely to be unable to repay the loan. Predatory lenders often charge high interest rates and fees, and they may use deceptive or unfair practices to get borrowers to sign up for loans.
Predatory lending is often considered to be unethical, and it can have a number of negative consequences for borrowers. Borrowers who take out predatory loans may find themselves in debt that they cannot repay, and they may have to file for bankruptcy. Predatory lending can also lead to foreclosures and evictions.
Alcohol
Alcohol is a controversial industry in ESG investing. Some investors believe that it is unethical to invest in companies that produce alcohol, as alcohol use is a major cause of death and disease. Others believe that alcohol companies can be profitable and sustainable businesses, and that investing in them can be a way to promote positive change in the industry.
Arguments for:
- Alcohol companies can be profitable businesses.
- Investing in alcohol companies can be a way to promote positive change in the industry.
- Alcohol companies are subject to strict regulations, which can help to protect investors.
Arguments against:
- Alcohol use is a major cause of death and disease. Killing over 3 million people each year around the world and has been directly linked to 12 different types of cancer (Cancer research UK).
- Alcohol companies are often accused of unethical practices, such as marketing to children.
- Alcohol companies are facing increasing competition from e-cigarettes and other alternatives.
Adult entertainment
Adult entertainment” in the context of ESG (Environmental, Social, and Governance) investing typically refers to businesses that are involved in the adult entertainment industry. These might include, but are not limited to, companies that produce, distribute, or sell sexually explicit material, own or operate adult entertainment venues, or provide related services. Ethically controversial the Adult entertainment industry has been linked to crime, funding terrorism, slavery, paedophilia, the spread of STIs, and racial and sexual discrimination.
Not all investors or ESG frameworks may exclude or penalize these types of companies. Instead, they may focus more on how these companies manage relevant social and governance issues, such as the wellbeing and fair treatment of their workers, adherence to legal regulations, and their impact on local communities.
Genetically modified plants and seeds
Refers to companies that develop, produce, or distribute genetically modified organisms (GMOs). GMOs are organisms (in this case, plants or seeds) that have been altered through genetic engineering methods, often to enhance traits like resistance to pests, disease, or environmental conditions, or to increase nutrient levels.
There is a great deal of debate about the safety and ethics of GM plants and seeds. Some people believe that GM is a safe and effective way to improve crop yields and nutrition, while others are concerned about the potential risks to human health and the environment. There is also concern that GM could lead to increased corporate control of the food supply.
Arguments for:
- GM can help to improve crop yields and nutrition.
- GM can help to reduce the use of pesticides and herbicides.
- GM can help to make crops more resistant to pests and diseases.
Arguments against:
- GM could pose a risk to human health.
- GM could pose a risk to the environment.
- GM could lead to increased corporate control of the food supply.
Fur and specialty leather
Fur and specialty leather are two industries that are often considered to be unethical by ESG investors. This is because the production of fur and leather can be cruel to animals and have a negative impact on the environment.
Fur is the skin of an animal that has been killed for its fur. Specialty leather is a type of leather that is made from the skin of an animal that is not typically used for leather, such as reptiles or fish.
The production of fur and leather can be cruel to animals. Animals that are raised for fur are often kept in cramped cages and are not given enough space to move around. They may also be subjected to painful procedures, such as declawing or tail docking.
The production of fur and leather can also have a negative impact on the environment. Fur farms often pollute the environment with waste from the animals. Leather production also requires a lot of water and energy.
For these reasons, ESG investors often avoid investing in companies that are involved in the fur and leather industries.
Military and weapons
Generally refers to businesses that manufacture, distribute, or sell military equipment, weapons, and related services. This can include everything from small arms and ammunition to larger equipment like tanks, aircraft, and ships, as well as advanced technologies like drones, missile systems, and nuclear weapons.
Some investors choose to exclude companies involved in the military and weapons sector based on ethical objections to violence and war, or because of the high levels of risk and controversy associated with this industry. Other investors may focus on companies that demonstrate responsible business practices, such as rigorous compliance systems to prevent illicit arms trade, or a commitment to reducing their environmental impact.
Gambling
Refers to businesses involved in the gambling industry. This includes companies that own or operate casinos, online gambling platforms, lottery businesses, or manufacture or distribute gambling equipment.
- Environmental: While this is generally not a major concern for gambling companies compared to industries like energy or manufacturing, some issues could include waste management in physical casinos, energy efficiency, and sustainable sourcing in their supply chains.
- Social: This is where the main concerns lie. Gambling can lead to addiction and have significant social costs, such as financial hardship, mental health issues, and family problems. There are also issues related to underage gambling, fairness of games, and the overall well-being of customers.
- Governance: Relevant concerns here include ethical advertising practices, transparency, anti-money laundering measures, and compliance with a complex set of national and international regulations.
Many ESG investors choose to avoid or limit their exposure to gambling companies due to these concerns, particularly the potential harm caused to individuals and communities by problem gambling. However, other investors may focus on gambling companies that demonstrate strong responsible gambling measures and robust governance practices.
Palm oil
Palm oil is a vegetable oil that is extracted from the fruit of the oil palm tree. It is the most widely used vegetable oil in the world, and is used in a wide variety of products, including food, cosmetics, and biodiesel.
Palm oil is a controversial crop, as its production has been linked to a number of environmental and social problems, including deforestation, habitat loss, and human rights abuses.
- Environmental: Palm oil production is a major driver of deforestation, particularly in Southeast Asia, leading to loss of biodiversity, greenhouse gas emissions, and soil and water pollution. Sustainable palm oil production practices aim to mitigate these impacts.
- Social: The industry is also associated with a number of social issues, such as land rights conflicts, labor exploitation, and impacts on local communities. Companies in the industry are expected to ensure fair labor practices and maintain good relations with local communities.
- Governance: This relates to how companies manage their operations, comply with laws and regulations, and engage with stakeholders. In the palm oil industry, this might involve implementing and enforcing policies on issues like deforestation, land rights, and labor conditions.
Arguments for:
- Palm oil is a versatile and efficient crop.
- Palm oil can be produced in a sustainable way.
- Investing in companies that produce palm oil can help to promote sustainable development.
Nuclear
Nuclear energy is a low-carbon source of energy, meaning that it does not produce greenhouse gases, which contribute to climate change. Nuclear power plants also have a high capacity factor, meaning that they can generate electricity for a significant portion of the year. This makes nuclear energy a reliable source of power, which can be important for countries that are looking to reduce their reliance on fossil fuels.
The nuclear energy industry has several significant ESG considerations:
- Environmental: Nuclear power produces virtually no greenhouse gas emissions during operation, which could be seen as a positive from a climate change perspective. However, it also produces radioactive waste, which needs to be managed and stored for long periods. In addition, the potential for serious environmental contamination in the event of a nuclear accident is a major concern.
- Social: There are significant public health and safety concerns associated with nuclear power, particularly regarding the potential for accidents and the long-term impacts of radiation exposure. These concerns can also lead to social opposition to nuclear energy, which can impact a company’s social license to operate.
- Governance: Companies in the nuclear sector must comply with a complex set of regulations and international agreements related to safety, waste management, and non-proliferation of nuclear weapons. They also need robust governance systems to manage these risks and responsibilities effectively.
The role of nuclear energy in ESG investing is a subject of debate. Some investors exclude nuclear power due to its potential risks and controversies, while others see it as a necessary part of the transition to a low-carbon energy system.
Pesticides
Pesticides are chemicals used to kill pests, such as insects, weeds, and rodents. They are used in a variety of industries, including agriculture, forestry, and public health.
Pesticides can have a number of negative environmental and social impacts. They can pollute water and soil, harm wildlife, and contribute to climate change. They can also be harmful to human health, causing a variety of health problems, including cancer, reproductive problems, and neurological disorders.
As a result of these concerns, some ESG investors choose to avoid investing in companies that produce or use pesticides.
- Pesticides can help to protect crops from pests, which can increase yields and reduce food prices.
- Pesticides can help to protect public health by reducing the spread of diseases carried by pests.
- Pesticides can help to protect the environment by reducing the need for deforestation and other land-use changes.
The use and production of pesticides have significant ESG implications:
- Environmental: Pesticides can have serious environmental impacts, such as contamination of soil, water, and air; harm to non-target species, including beneficial insects, birds, and mammals; and contribution to biodiversity loss. Companies involved in the manufacture or intensive use of pesticides are expected to manage these environmental risks effectively.
- Social: There are significant health and safety issues associated with pesticide exposure, particularly for agricultural workers but also for rural communities and consumers. Companies are expected to ensure safe working conditions and responsible use of pesticides to minimize these risks.
- Governance: Regulatory compliance is a key issue in this sector. Pesticides are subject to extensive regulation regarding their development, approval, manufacture, labeling, distribution, and use. Companies must also maintain robust systems for managing these regulatory requirements and other business risks.
Banking
Refers to financial institutions that provide various services like accepting deposits, lending funds, wealth management, currency exchange, and financial advice.
Banks have significant ESG considerations:
- Environmental: Banks can indirectly impact the environment through their lending and investment activities. For example, a bank that funds fossil fuel projects or industries linked to deforestation might be seen as contributing to environmental harm. On the other hand, banks can play a crucial role in promoting environmental sustainability by supporting renewable energy, green building, and other environmentally friendly projects and businesses.
- Social: Banks have a responsibility to treat their customers fairly and to ensure their services are accessible to all segments of society, including low-income individuals and communities. They also need to consider the social impacts of their lending and investment activities, such as whether they are supporting projects that may lead to community displacement or poor working conditions.
- Governance: Banks are highly regulated entities, and thus need to have strong systems in place to ensure regulatory compliance. Other important governance factors include risk management, executive compensation, board diversity and independence, transparency, and how well they manage their relationships with stakeholders.
Child labour
Child labor is defined as work that deprives children of their childhood, interferes with their education, and is harmful to their physical and mental development. The International Labour Organization (ILO) defines child labour as work that is hazardous or interferes with a child’s education.
The ILO estimates that there are 218 million child labourers in the world, aged 5 to 17 years old. Of these, 152 million are in hazardous work, which is work that is likely to harm their health, safety, or morals.
Child labour can have a number of negative consequences for children, including:
- Reduced educational attainment
- Increased risk of injury or death
- Psychological distress
- Social exclusion
Eliminating child labour is a complex issue, but it is one that investors can play a role in addressing. By using ESG criteria and shareholder activism, investors can help to ensure that children are not exploited in the workplace.
Pharmaceuticals and the opioid crisis
The opioid crisis is a major public health issue in the United States. It is estimated that over 100,000 people died from opioid overdoses in 2019. The crisis has been caused by a number of factors, including the over-prescription of opioids by doctors and the availability of opioids on the black market.
Pharmaceutical companies have been criticized for their role in the opioid crisis. Some companies have been accused of aggressively marketing opioids to doctors, even though they knew that the drugs were addictive. Other companies have been accused of failing to adequately warn doctors about the risks of opioids.
Addressing the opioid crisis is a complex issue, but it is one that investors can play a role in addressing. By using ESG criteria and shareholder activism, investors can help to ensure that pharmaceutical companies are held accountable for their role in the crisis and that they are working to develop safer and more effective pain management treatments.
Deforestation
Typically refers to the environmental impact caused by companies or industries that are directly or indirectly contributing to the removal or clearing of forests. This includes, but is not limited to, industries such as agriculture (particularly for commodities like palm oil, soy, and beef), logging, mining, and infrastructure development.
Deforestation presents several ESG risks and considerations:
- Environmental: Deforestation leads to loss of biodiversity, disruption of ecosystems, soil erosion, and contributes significantly to climate change through the release of stored carbon dioxide when trees are cut down and land is burned.
- Social: It can lead to conflicts over land and resources, displacement of local communities and indigenous peoples, and can impact livelihoods that depend on the forest. It also reduces the availability of forest resources like timber, food, and medicinal plants.
- Governance: Companies associated with deforestation face regulatory risks, such as penalties for illegal logging or not complying with sustainable land use policies. They may also face reputational risks, especially if they’re not meeting their own commitments to reduce deforestation, or those of industry certification schemes like the Forest Stewardship Council (FSC) or Roundtable on Sustainable Palm Oil (RSPO).
In the context of ESG investing, some investors may choose to divest or exclude companies linked to deforestation, while others may engage with companies to improve their practices. Companies that are able to demonstrate effective policies and practices to prevent deforestation in their operations and supply chains may be viewed more favorably from an ESG perspective.
Destruction of natural Environment
The destruction of the natural environment is a broad term that can encompass a variety of activities, including:
- Deforestation
- Pollution
- Overfishing
- Overhunting
- Habitat destruction
- Climate change
The destruction of the natural environment is a serious problem that has a number of negative consequences, including:
- Loss of biodiversity
- Climate change
- Water pollution
- Air pollution
- Soil erosion
- Natural disasters
Mining
“Mining” refers to companies involved in the extraction of minerals, metals, and other geological materials from the earth. This includes everything from precious metals like gold and silver to industrial metals like iron, copper, and nickel, as well as non-metallic minerals like diamonds or rare earth elements.
When it comes to mining, ESG investors are concerned about a number of issues, including:
- Deforestation: Mining can lead to deforestation, as trees are cleared to make way for mines. This can have a negative impact on biodiversity and climate change.
- Water pollution: Mining can pollute water supplies, as chemicals and sediments are released into rivers and streams. This can have a negative impact on human health and ecosystems.
- Air pollution: Mining can pollute the air, as dust and fumes are released into the atmosphere. This can have a negative impact on human health and air quality.
- Social impacts: Mining can have a negative impact on local communities, as it can lead to displacement, pollution, and other problems.
The mining industry does have a number of benefits for ESG investing. These include:
- Sustainable materials: Mining provides the world with the essential materials needed to build a sustainable future, such as metals for renewable energy and electric vehicles, and minerals for batteries and other technologies.
- Job creation: The mining industry is a major employer, providing jobs in both developed and developing countries.
- Economic development: Mining can help to drive economic development in local communities, providing tax revenue and other benefits.
- Environmental stewardship: Mining companies are increasingly committed to environmental stewardship, working to reduce their environmental impact and develop sustainable mining practices.
Working Mother
Investing in companies that are protecting and supporting working mothers who are over represented in the negative impacts of pay, working conditions and career progression. According to a report from the United Nations, women are over represented in many of the industries that have suffered the most from the pandemic, including food service, retail and entertainment. The overall job and income losses have resulted in 47 million women and girls being pushed into extreme poverty, further widening the gender poverty gap.
Sustainable Forrest supporter
Over half of global GDP is potentially threatened by nature loss, making restoration an economic priority in the decade ahead. The sustainable management of forests could create $230 billion in business opportunities and 16 million jobs worldwide by 2030. Companies across industries are investing in forests to foster resilience, profitability and growth, and values-based leadership.
