ESG Investing Mindset

ESG (environmental, social and governance) investing is the future, and educating young people about incorporating ESG into investment decisions is crucial for its long-term development. According to the Retail Investor Study conducted by IFEC in 2023, young investors are aware of and more interested in ESG investing but are less likely to take action. To turn their awareness and interest into action, investors should approach ESG investing with two mindsets: “do your research” and “take a long-term perspective”.

Always remember to do your research before investing. Investors should take time and effort to study and understand the nature of ESG investment and the underlying products. They may start with the following aspects:

1. Understand the basic concept of ESG: ESG covers a wide range of topics that are closely related to a company’s financial performance. Environmental factors include climate change, carbon emissions, resource utilization efficiency, and pollution prevention; social factors include labour rights, gender equality, product safety, and community relations; while governance factors include corporate governance structure, risk management, business ethics, and information transparency.
2. Utilise ESG indexes and ratings: Investors may assess the performance of an investment using the relevant indexes and ratings. As ESG investing has gradually become mainstream, we can find many indexes and ratings that track the performance of ESG investments. Understanding the methodologies and criteria used by ESG rating agencies may give us a better idea of a company’s ESG performance.
3. Research on ESG investments: Investors should examine different types of ESG investment products, such as ESG funds, and green and sustainable bonds, and compare their features and risks.
4. Read ESG reports: Listed companies in Hong Kong are required to publish ESG reports every year, offering investors a clear view of their ESG performance.

Instead of focusing on the financial return of a product for one or two years only, investors should consider its sustainability and social responsibility. ESG factors may bring investment opportunities and risks to a company and affect its long-term value. Investors should review a company’s ESG policies, identify the ESG factors that may have a significant impact on the business, and find out how the management handles the opportunities and risks presented by ESG, and how these will affect the operation and finance. When it comes to ESG investing, investors should also focus on the long-term value in addition to the short-term gain.