Smart investors have long acknowledged that there is more that drives funding returns than simply what is stated in financial reports.
They understand that businesses or assets won’t thrive at the same time as ignoring environmental problems (pollution, climate change, water and other sources scarcity), social problems (local communities, employees, health and safety), corporate governance problems (management, ethics, boards, government pay) or moral issues.
Responsible investment, also known as sustainable or moral investment, is a broad-based method of investing that factors in people, society, and the environment, along with monetary performance when making and managing investments.
As there are various investment options, digital assets, stocks and shares, bonds, and companies, it is crucial to do your homework before starting your portfolio.
Investing in a company has many upsides, however, investing large amounts of capital into the wrong company could be devastating for your portfolio. To practice good governance when investing in a company, these are some examples to first consider:
- Divesting (removing investment) from an employer with a poor human rights record
- Avoiding any engagement with a corporation covered in a funding portfolio around its exposure to carbon-intensive industries
- Investing in a program or social enterprise that is focused on tackling a pressing social or environmental issue
- Analysing and selecting a portfolio of companies to invest in primarily based on their overall environmental, social, and governance performance
Investors engage in responsible investing for a variety of reasons including aligning investments with their personal or their clients’ private values and ethics, limiting risk, and reaping robust financial returns in the short and long term.
All kinds of investors can be responsible when investing, whether or not they are the people deciding on the place to put their savings or superannuation; a trustee of a trust or foundation; or an institutional investor such as an exquisite fund, fund manager, financial institution or asset manager.
Good governance is vital, and as there are many options available to the savvy investor, it is important to know the different types of investments that have recently been much more regulated, such as cryptocurrency.
The Securities and Exchange Commission (SEC), a U.S. government oversight agency responsible for regulating the securities markets and protecting investors is leading the charge for more regulatory oversight of crypto products and platforms that may be engaging in the sale and offering of securities.
So, what does this mean for investors? Well, if crypto becomes more regulated, crypto exchanges would be forced to adopt technology systems to make their order books audit-compliant. This would also mean they would face strict rules on order execution to prevent market manipulation. This could be looked at as a threat to some investors, but, for those serious investors that practice good governance, this is ultimately a very good thing, and here’s why.
- More regulation of cryptocurrency could certainly increase market stability, as well as the price and value of crypto.
- Tighter regulations could also have the potential to increase investor protections in the market and prevent fraudulent activity within the crypto ecosystem.
- This could mean clearer guidance to allow companies to innovate in the crypto economy 457w
Essentially, as it stands, the market for digital assets is mostly unregulated, their values are open to constant manipulation. Buyers and sellers are frequently defrauded or simply taken advantage of, and both the digital assets and the money can be easily stolen. Taxes owed are frequently neither declared nor paid. This poor regulation also leads to misconceptions around investing in crypto and often ties these digital assets to criminal activity.
Well-functioning capital markets ensure that investments are directed in a fair, orderly, and efficient way to their most productive uses; that investors are protected; and that the public interest is served. This can only be achieved through proper regulation, which in turn leads to investors practising good governance.
Quite often, the ‘governance’ part of ESGs is ignored, but for investors that are in it for the long run, setting a clear governance strategy before risking any capital is essential.
By Marcus de Maria, Founder and Chairman of Investment Mastery
Featured Photo by Joshua Mayo on Unsplash
