Accounting and Financial Management: ESG Investments Report

This report provides a comprehensive analysis of ESG (Environmental, Social, and Governance) investments, examining their impact on financial performance and their potential to shape the future of finance. The report delves into the environmental criteria, including a company's energy usage, waste management, and pollution control, and its effects on the environment. The social factors, such as a company's relationship with society, its contributions to social well-being, and its treatment of employees, are also explored. The report further investigates governance aspects, including transparency, accuracy in accounting methods, and the rights of stakeholders. The analysis highlights how companies that integrate ESG factors often exhibit superior financial performance and attract more investors. It also acknowledges the challenges in integrating ESG factors into portfolios, while emphasizing the potential benefits of ESG investments for both companies and investment managers. The report concludes by arguing that ESG investments are poised to become a dominant force in the financial market.

Running head: ACCOUNTING AND FINANCIAL MANAGEMENT
ACCOUNTING AND FINANCIAL MANAGEMENT’
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Table of Contents
INTRODUCTION:..............................................................................................................2
ENVIRONMENT:...............................................................................................................2
SOCIAL:..............................................................................................................................3
GOVERNANCE:.................................................................................................................4
CONCLUSIONS:................................................................................................................5
REFERENCE:.....................................................................................................................6

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INTRODUCTION:
ESG investments are a type of investment that can also be termed as the sustainable
investments. ESG investment has a huge impact on the society in the long run. The abbreviation
of ESG investment is Environmental, Social and Governance Investment. ESG investment has
considerable effect on the environment and the business performance of the company. ESG has
different types of sustainable investments. This includes impact investment, socially responsible
investing and value based investments (Tyagi 2014). As per Financial Times Lexicon, ESG is a
term that is mostly used in the capital market by the participants of the market while evaluating
the corporate behaviour of the company. The term is also used while assessing the financial
performance of the companies.
ENVIRONMENT:
The abbreviation of “E” stands for environment. The environmental criteria mainly
includes the company’s use of energy, company’s decisions regarding the dumping of waste and
restricting the rate of pollution in the environment. The treatment of animals by the company
also falls under the environment part of ESG. The environmental part of the ESG encourages the
company to implement and evaluate the environmental risks that the company can bring to the
environment. ESG plays a vital role in assisting the company to manage the environmental
related risks (Fatemi, Glaum and Kaiser 2018). For example the implementation of the policies
regarding the dumping of company’s waste falls under the purview of the ESG activity of the
company. Managing of toxic emissions, restricting the company to contaminate the land and also
maintaining the rules and regulations that the government imposed for safeguarding the
environment is all falls under the purview of ESG activity of the company.

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The environment factors of ESG enable the company to represent the actual activity that
the company performs regarding the reduction of the carbon footprints in the annual report. As
per Goldman, the companies around the world state that they reduce the carbon footprints, but
only small percentage of companies actually present in their sustainability report.
For example, Coca Cola who have increased their investments in sustainability projects
have seen high financial performance. Coca Cola reduced 20% water intensity to fight the water
crisis in the world. The same can be seen in the case of Marks and Spencer, when the company
decreased the production of waste. Thus, it can be seen that the investments in ESG ultimately
assists the company to save costs that ultimately increase the profit margin of the company. The
high financial performance means that the company will attract more investors from the market
in exchange of high returns (Schramade 2016).
For example, in the case of Volkswagen, the company was accused of selling defeat
device or software by the Environmental Protection Agency (EPA). As per the allegations the
German company was creating the cars that defy the emissions tests in the United States of
America (Mansouri 2016). The company was also accused of modifying the diesel engines,
which ultimately the carbon dioxide emissions levels.
SOCIAL:
The abbreviation of “S” in ESG stands for social. The social is the criteria which look
after the company’s business relationship with the society. The relationship between the
suppliers and other stakeholders falls under the purview of Social in ESG. The social also looks
after the contribution of the company to the society. The percentage of profit that the company

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provides or donates for the wellbeing of the society also looks after by the ESG activity. The
company’s efforts to involve the employees for corporate social activity also take care by the
ESG team of the company. As per the social criteria the company also needs to take care about
the safety and working conditions of employees. The shareholder interests are the utmost priority
for any company. ESG activity of the company demands that the company should maintain the
stakeholder’s interest under any circumstances.
Social factors of the company also include human rights, supply chain and labor
standards any kind of child labor. The social score of the company also increases if the company
maintains a good relationship with the local community. The importance of local license and
operating with consent are some of the important factors that the social factor marks, while
calculating the social score of the company.
Investment managers usually apply social and sustainable factors while taking the
decisions regarding the creation of portfolio. As per World Bank, the company having solid
environmental and sustainability records outperforms their counterparts. The sector driven ESG
approach will potentially drive returns (Nagy, Kassam and Lee 2016). Thus, investing in ESG
implemented companies proves to be fruitful for the investment managers or corporate
managers.
GOVERNANCE:
The governance is the abbreviation of “G” in ESG activity of the company. Governance
demands that the company must keep the accounting method transparent to the stakeholders of
the company. The accuracy is also one of the major factors that the company has to showcase to
their shareholders. The governance factor of ESG assists the company to provide complete

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freedom to the stakeholders of the company to vote on important issues. The voting for the
chairman, directors and the managing directors are mainly done by the stakeholders of the
company. The governance part of ESG also includes the assurances that make companies to
avoid conflicts of interests (Van Duuren, Plantinga and Scholtens 2016). The governance parts of
ESG assist the company to avoid any kind of situation where the company needs to engage in
illegal practices. Governance of ESG brings Institutional Shareholder Services and Governance
Metrics International in the system. This enables the corporate managers to focus on this two
while investing. The importance of the above mentioned system can also be implemented by the
credit rating agencies.
CONCLUSIONS:
After analyzing the above data it can be determined that the financial performance of the
company depends on the involvement of the company in the sustainability project. It is also
evident from the analysis that the companies who invests in ESG performs much better in
comparison to the companies who are not involved. The financial performance of the company
also depends greatly in the investments made by the company. Though the integration of ESG
embedded stocks in the portfolio is very tough due to the absence of proper presentation, but still
with the help of professionals the problems related with the integration in the portfolio can be
mitigated. Thus, ESG investments can be beneficial for the company.

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REFERENCE:
Fatemi, A., Glaum, M. and Kaiser, S., 2018. ESG performance and firm value: The moderating
role of disclosure. Global Finance Journal, 38, pp.45-64.
Mansouri, N., 2016. A case study of Volkswagen unethical practice in diesel emission
test. International Journal of Science and Engineering Applications, 5(4), pp.211-216.
Nagy, Z., Kassam, A. and Lee, L.E., 2016. Can ESG add alpha? An analysis of ESG tilt and
Sassen, R., Hinze, A.K. and Hardeck, I., 2016. Impact of ESG factors on firm risk in
Europe. Journal of business economics, 86(8), pp.867-904.
Van Duuren, E., Plantinga, A. and Scholtens, B., 2016. ESG integration and the investment
management process: Fundamental investing reinvented. Journal of Business Ethics, 138(3),
pp.525-533.