As society becomes more socially and environmentally conscious with the pressure of climate change abounding and calls for social change, greater equity, and inclusion prominent in public discourse, there has been a steady rise in media coverage and consumer demand for “sustainable brands” and investments over the years. The demand for transparency on sustainable and socially responsible practices is on the rise.
By now, you have likely heard the term “ESG Investing” numerous times over the past two years among finance and corporate circles, from CEOs of leading asset management firms to stock market projections, to your favorite sneaker company’s annual report. But what exactly does it mean? And, why does it matter?
In short, ESG means “sustainability.” The abbreviation ESG stands for Environmental, Social and Governance and refers to principles, data or metrics related to an organization’s non-monetary assets. Increasingly, investors are placing greater importance on these three factors as part of their risk analysis and strategic growth plans to ensure they lessen any harm to communities and to support responsible corporate enterprise.
Environmental, social and governance metrics provide a glimpse of a company’s otherwise unseen impact in these areas. ESG analysis and reporting can provide valuable insights and help create long-term value for stakeholders. ESG measures can significantly affect the future financial health of a company for better or worse and help inform investment decisions. ESG helps companies build resilience to potential risks and market shocks that may result from climate change and the ever-globalizing marketplace. ESG reporting helps investors avoid companies that might present a greater financial risk due to their environmental performance or other social or governmental practices.
Image by “The power of ESG & Sustainable Investing,” Sustainability Academy
Companies are accountable to their various stakeholders – investors, customers, employees, and the communities in which they operate – and are repeatedly being asked to demonstrate their impact on the world both in positive and negative ways. More specifically, these areas include:
- Environmental: the utilization and management of resources like energy, water and land and the mitigation of any harmful effects on the environment. Example indicators are air and water quality, biodiversity, climate change, carbon emissions, deforestation, energy efficiency, and waste management.
- Social: the use of people, culture, and communities and whether there is a promotion and protection of rights, health, integrity, and livelihood. This includes customer satisfaction, data protection, inclusivity, gender and diversity, community relations, employee engagement, privacy, human rights, and labor standards.
- Governance: the integrity and transparency of a company’s internal operations and leadership including their system of controls, practices, and procedures. It is how an organization complies with laws, regulations, and standards of ethical business practices. Inclusive indicators area diverse and qualified leadership, board composition, compensation, internal controls, shareholder rights, bribery and corruption, lobbying, political contributions, and whistleblower programs.
The Importance of ESG in Investing and Finance
The recent surge in ESG Investing means many companies now demonstrate their ESG analysis in their annual reporting to communicate their corporate social responsibility and how sustainability is embedded in their business model. While there are no mandatory standards or reporting laws in most countries, global regulations regarding corporate ESG data is becoming more common, and frankly expected.
Leading analysts have compiled strong evidence that ESG Investing is a mainstay in corporate and investment culture:
- Strong ESG performance correlates to higher returns on investments, lowered risks, and better crisis resiliency
- 90% of companies in the S&P 500 publish their annual corporate sustainability/ESG Investing analytics
- The Deloitte Center for Financial Services projects ESG-mandated assets in the United States will grow close to three times as fast as non-ESG-mandated assets and will make up half of all managed investments by 2025.
Another major reason why ESG matters is its role in risk mitigation. Companies that ignore environmental, social and governance factors may face unforeseen financial risks and investor scrutiny. For example, a large data breach, environmental pollution, worker strikes, or litigation can irreversibly harm an investor’s portfolio or a company’s reputation and stock value.
Finally, client demand from both retail and institutional investors is now the top reason reported by money managers to incorporate ESG factors into investment decisions.
AVANA Companies is Proud to Support a More Sustainable Future
AVANA Capital has a long history of investing in renewable and solar energy, expanding economic and investment opportunities to a greater number of people, creating jobs and ultimately a more sustainable future. Investing in and supporting ESG projects is a cornerstone of our organization.
“At AVANA Companies, we collaborate with a diverse group of skilled professionals to foster our mission to build and preserve communities through Commercial Real Estate (CRE), Renewable Lending and Small and Medium Enterprise (SME) lending opportunities. Our aim to contribute to the social good and support industries that bring value to communities by providing business owners with the capital needed to grow and create jobs, stimulate economic growth, and finance diverse renewable energy projects.” says CEO Sundip Patel. “AVANA’s number one goal is to promote local ESG (Environmental, Social and Corporate Governance) investment opportunities for the benefit of our communities. AVANA aims to educate potential investors about alternative investments and give them a platform to invest in commercial real estate projects that have a social and environmental impact.”
Last year, AVANA Capital partnered with Live Oak Bank to provide $20MM in financing for a renewable natural gas project in Southern Arizona. The biogas project supports Paloma Dairy Farm in providing renewable natural gas to the region with locally produced energy while combating a major source of greenhouse gas emissions. AVANA Capital also successfully partnered with Live Oak Bank and Tortoise Capital Advisors to provide financing for Carbon Cycle Energy’s renewable natural gas facility in North Carolina.
With an eye toward the future and helping students, AVANA Capital provided $39MM in energy efficiency construction loans to complete an energy savings contract for a Florida school district. Through projects like this one, AVANA Capital promotes and supports the use of energy efficiency solutions, expanding the impact of clean energy in the lives of local communities. In this case, the use of energy efficiency equipment — including lighting, HVAC, and energy management systems —was enabled in a large school district, making a meaningful positive impact on our environment as well as the communities and students of Hillsborough County.
Over the last two years AVANA has financed over $235MM in ESG projects within the solar, biogas, and energy efficiency equipment sectors. We are committed to growing our investment and financing clean energy in the future, with a target of $500MM annually in renewable energy financing going forward.
For more ESG financing project examples, please visit avanacapital.com.