ESG Crowdfunding
As the head of Crowdfund Buzz, I'm constantly exploring new ways to attract investors to our clients' equity crowdfunding campaigns. Something seemingly obvious struck me like lightning and it's too good not to share; ESG crowdfunding.
ESG or Environmental, Social and Governance are non-financial factors used to analyse investment processes and identify material risks and growth opportunities. Although these metrics are not a part of mandatory financial reporting, reputed institutions plan to incorporate these factors into investments. Fidelity has already rolled out ESG ratings on their trading platform.
Personally, I don't consider ESG ratings when making investment decisions but lots of investors do and ESG trends are becoming increasingly popular. It's time for ESG crowdfunding to emerge as another way to draw investments from a sympathetic sector of the investment community.
To get a fuller understanding of the companies in which an individual invests, he or she can consider incorporating ESG data. However, in order to do so, it is imperative to learn about these factors in detail.
A Closer Look at the ESG Factors
It is challenging to classify an ESG issue as only an environmental, social or governance issue because of its interlinking. Nevertheless, here are some major concerns under each of these factors:
Environmental: These factors put stress on the conservation of the natural world. Some examples include:
●??????Carbon emissions and climate change
●??????Deforestation
●??????Water scarcity
●??????Water and air pollution
●??????Energy efficiency
●??????Waste management
●??????Biodiversity
Social: This is a metric focusing on consideration of people and relationships. Some social factors are:
●??????Human rights
●??????Gender and diversity
●??????Customer satisfaction
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●??????Labour standards
●??????Employee engagement
●??????Data protection and privacy
●??????Community relations
Governance: These are the standards for running a company. Examples include:
●??????Political contributions
●??????Bribery and corruption
●??????Board composition
●??????Lobbying
●??????Whistleblower schemes
●??????Executive compensation
●??????Audit committee structure
Calculation of ESG Metrics
Although there is no standard approach to calculating or presenting various ESG metrics, investors can undertake a couple of analytical approaches and data sources to consider these factors. They can also give weight to client interest and potential values.
Moreover, understanding the merits and limitations of different ESG factors before analyzing data is crucial for identifying ESG risks and opportunities.
Due to accelerating issues like climate change and social unrest, ESG investing is in demand. Especially because of the pandemic situation, the interconnection between sustainability and financial systems is apparent. So, ESG analysis has become an essential part of the investment process. Equity crowdfunding campaigns interested in building a loyal tribe should lean in to ESG whenever feasible.
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