Articles & Alerts

Investing for the future is happening now. Are you ready?

November 3, 2020

At Anchin TAS, we have continued to receive calls from business owners and investors about the uncertainty in 2020, such as the PPP stimulus, social unrest, impending US election, and the global pandemic. This uncertainty has ignited more conversations about responsible investing that impacts not only our current situation, but also the future.

Deal & financial diligence is heavily skewed towards utilizing Quality of Earnings and other financial analysis during a transaction. Financial metrics such as P/E ratios, EBITDA and working capital are often used to assess value. However, as the next generation has begun to take over the investing mantle, more attention is being paid to environmental, social and governance (ESG) criteria. These are non-financial metrics that business owners and institutional investors are considering in their investments.  In fact, in 2018, 25% of investments in the United States were completed according to ESG criteria.

What is ESG investing?

ESG investing is one of the fastest growing categories of investment choices, merging environmental, social, and governance factors into traditional investment evaluations. This means investing in companies with a mission-driven purpose combined with the expectation of solid financial returns. Investors are thinking more about how to leave a lasting legacy for the future generations, which goes beyond economic legacy or generational wealth.

What kind of indicators fall under this grouping?

  • Environmental indicators include a company’s lasting effects on the natural world, for example the emission of greenhouse gases, pollution, and waste practices.
  • Social factors include the relationships and humanitarian aspect of a company’s business practices. This can include a company’s employee engagement, diversity and inclusion (D&I) in the workforce or in the supply chain, and customer satisfaction.
  • Governance criteria involve the company’s internal business practices, such as financial reporting transparency and conflicts of interest.

Research shows that pursuing ESG-friendly business policies actually pay off.

Bank of America’s Global Research division concluded that U.S. companies with high ESG ratings in the S&P 500 have outperformed their counterparts by at least 3% every year for the past 5 years. As a result of these positive outcomes, almost 500 companies added ESG language to their prospectuses between 2018 and 2019.

In other words, you do not have to compromise financial returns when participating in ESG investing. Anchin TAS is able to help you get started on ESG investing. Reach out to us to get a jumpstart on investing for the future.