Suppose you are an investor just entering the market, eagerly looking for a firm that has the potential for high returns and is worth investing. How would you investigate? In which aspects?

While the topic of “business ethics” was still lingering around my head, a term called “ESG Investing” popped up on the computer screen in front of my eyes. The three components of “ESG” — “Environmental”, “social”, and “governance” have become a trendy approach for the investors to learn about the firms. Despite of the fact that the first funds related to sustainability started around 1970s, the amount of assets invested with a consideration on ESG have increased $8 trillion globally in recent years. In addition to the data collected online, it has been proven that the returns are much higher than the expectations, as the ethical behaviors of industries almost turn into a household concern. As a result, nowadays, when deciding whether to invest or not, instead of looking at a company’s financial performance, the investors are more willing to take its contribution on the society into consideration.

However, the standard of ethics is subjective that it varies from person to person. Jack Richards, an investment analyst at Capita Employee Benefits argued in one of his articles that some industries, such as tobacco, alcohol, and arms, are not distracting social welfare if they don’t promote or encourage excessive consumption. The boundaries are not clearly defined. Some companies then take the benefits of those grey areas in between, claiming that they are “ethical” enough to be invested without any factual evidence. Those who build their businesses step by step yet don’t contribute much for the “social good” are automatically out of this game.

Being attracted by the reputation and advantages from “ESG Investing”, many of the investors gradually lose their original intentions in the market. More importantly, instead of getting what the firms should have deserved for themselves, the economy, and global market, the direction of the overall approach is now being misled by something else.

If you are the investor, would you let “ESG” dominate your decisions?

References:

Ethical investment is booming. But what is it? (2017, September 21). Retrieved September 27, 2017, from https://www.economist.com/news/finance-and-economics/21729463-esg-investment-hard-define-and-its-returns-are-hard-measure-ethical

Schillerstrom, R., Matthew Wurtzel (2013, January 22). Poll result: Should public pension plans use ESG screens when investing? Retrieved September 27, 2017, from http://www.pionline.com/article/20130122/ONLINE/130129982/poll-result-should-public-pension-plans-use-esg-screens-when-investing

Anon, (2017). [online] Available at: https://www.linkedin.com/pulse/esg-investing-rising-tide-jack-richards [Accessed 27 Sep. 2017].

Have you heard the latest news in the cosmetic industry? The Body Shop, a well-known manufacturer for bathing products, has been recently experiencing a downturn in the global market.

Forty years ago, The Body Shop introduced a unique brand of bathing products to an entirely new generation. The objective was to highlight exotic materials from nature but at the same time, ban animal testing. Undoubtedly, the company’s original business ethics elevated The Body Shop brand to the top, allowing it to take its place amongst the establishment of the cosmetic world.

However, in 2016, reported data showed that The Body Shop had made little contribution to its parent company, L’Oréal. Its revenue continued to slip, creating internal financial problems. It is no longer a neighborhood-favored brand, and is gradually being replaced by competitors such as Lush, with cheaper prices and fancier concepts.

As the world continues to develop at an exponential rate, traditional business ethics are no longer the way to establish a brand, in order to make it compatible in the explosive global market. This confirms that people nowadays have become more aware of the social responsibilities a business carries to its community. Despite the cruel fact that The Body Shop is falling behind the race, there are actually lots of companies that run in front only use “the ethics” as their slogans to attract customers without any practical action. As a result, the ethics of a business should be part of its foundation, and not be used as a promotional gimmick.

The Body Shop launches Forever Against Animal Testing campaign (CNW Group/The Body Shop)

References:

An ethical retailer takes a bath. (2017, February 16). Retrieved September 13, 2017, from https://www.economist.com/news/britain/21717085-iconic-brand-badly-needs-makeover-ethical-retailer-takes-bath

The Body Shop and Cruelty Free International Campaign to end cosmetic product and ingredient animal testing globally once and for all.  Retrieved September 13, 2017, from http://www.newswire.ca/news-releases/the-body-shop-and-cruelty-free-international-campaign-to-end-cosmetic-product-and-ingredient-animal-testing-globally-once-and-for-all-625675423.htm