[1월호, 2021년] Are you aware of your Investments? - 5기 강인구

Are you aware of your Investments?

5기 강인구

 

In our previous post, ‘코로나19로 본 ESG와 자본주의의 新미래’ – 4기 신서윤, 5기 이상연 (https://sdpglobal.blogspot.com/2020/12/12-2020-19-esg-4-5.html) , we introduced how Economic, Social, and Governance (ESG) of the company can be significant for a corporate individual. Some of the key ideas of this post includes ESG investment and the responsibilities of corporate identities to the social environment. (Refer to the post for further details.)

Current Status

Due to the Covid-19 pandemic, stock markets experienced massive fluctuations with record lows and record highs in less than a year. (KOSPI hitting 1400pts to 3200pts) More individual investors jumped into the stock market due to these fluctuations. Driven by the psychological idea of FOMO(Fear Of Missing Out), individual investors have entered the market to earn profit as many investors are increasingly gaining profit from their stocks. However, most of these individual investors are not aware of the financials of the company or where the companies invest their money in. While there are various reference materials to study from (which are highly recommended to read before investing), this post is focused on the sustainability and social involvement of the firm and its activities.

CSR

CSR, Corporate Social Responsibility, is defined as ‘a self-regulating business model that helps a company be socially accountable to itself, its stakeholders, and the public’ according to Investopedia. Through involvement in CSR activities, firms play its role as social entities. Now that we are aware of what CSR is, the next question should be ‘Do all CSR activities stem from goodwill?’ The answer is simply – No. Many CSR activities may have good intentions but, at times, they are only used to improve the corporate’s reputation; these activities are sometimes completely unrelated to the company. For an investor of the firm, the primary duty of the firm should be its economic responsibilities rather than its philanthropic responsibilities. Hence, CSR activities should be done within an acceptable range and should uphold the values of the firm rather than being random donations to the public.

<Samsung Fire Insurance Co’s Guide Dog school>

ESG Ratings and Analysis

For us to understand how the firm is performing in terms of ESG and through CSR Activities, there are various rating agencies available to the public. One of them is the ESG ratings provided by MSCI. (https://www.msci.com/our-solutions/esg-investing/esg-ratings) The MSCI ratings rates firms based on their involvement in ESG from laggard(CCC) to leader(AAA) – similar to how credit ratings are given. It provides the data for free to the public and shows how the firm performed over the year. Through such rating agencies, investors can be better informed that their investments are not going to the wrong hands.

<Tesla Inc’s MSCI ESG Rating>

Other than the MSCI ratings, individual investors can access sustainalytics (www.sustainalytics.com) as an alternative rating agency. There are other various rating agencies available which is not mentioned in this blog, but investors should be wise as different agencies may have different ratings depending on what they consider the industry is ‘material’ about. SASB materiality map and MSCI materiality reports show what the industry should be focused on when conducting CSR activities. For further analysis into the firm, most companies provide sustainability reports on their websites. These reports give extensive details on the firm’s CSR and ESG activities. (related blog post: https://sdpglobal.blogspot.com/2020/10/10-2020-internalizing-social-and.html) However, investors should be cautious as these reports are not completely objective. Likewise, through various research methods, investors can be aware of whether their investments are used for a good purpose or not.

<SASB Materiality Map>

Conclusion

With more induvial investors participating in the stock market, this blog post is intended to inform investors to be aware of the social impacts of the firm. This is not to give advice on what to invest but rather to remind potential investors to be aware of what they are investing in. (Nevertheless, there are many academic journals that point out to the correlation between ESG ratings and profits/credit ratings). At the very least, investors should be aware of the ins-and-outs of the firm that they invest in.  

This blog post is in no way intended to promote or denounce the mentioned firms.