Environment, social, and governance (ESG) has been on the rise in recent years due to public awareness and increased regulation. We’ve seen a big increase in the use of ESG data by investors and an increasing number of funds are now targeting specific investments in companies and sectors based on environmental, social and governance factors. Everywhere you look, companies are starting to incorporate ESG principles into their business strategies and as the market matures, we’re seeing a growing number of opportunities to invest in companies with a positive social and environmental impact. We believe this is a great development and is going to have a huge impact on the corporate landscape over the next few years.
Let’s take a closer look at biggest trends that are reshaping the ESG industry and how you can take advantage of them in 2023.
1. AI and machine learning – bringing automation to the ESG space
As artificial intelligence (AI) and machine learning technologies continue to develop at a rapid rate, we’re seeing a huge trend towards automation and customisation in the ESG space. The main benefit of this is that it’s making the process of selecting investments faster and easier for advisors and investors alike. Instead of manually analysing ESG data and sorting through hundreds of potential investment opportunities, you can now use algorithms to identify companies that match your criteria and rank them based on your risk/return profile. This will make the search for good ESG stocks much easier and the selection process much faster and more efficient. It will also reduce the costs and resources required to run an ESG portfolio and help make it more accessible to a wider range of investors.
As well as making it easier to identify and manage ESG investments, the technology can also be used to conduct more sophisticated research and identify companies that have positive social impacts but aren’t currently making the news headlines.
As the technology develops further over the coming years, we expect that it will become even more effective at providing valuable insights into the ESG performance of companies and help us identify new investment opportunities.
2. Charitable giving – an increasingly important consideration for organisations
As organisations start to feel the impact of next generations demanding more ethical and responsible business conduct practices, they’re starting to become more aware of how they can maximise the impact they have on society and the environment. For some companies, this has meant developing a strategy to embed socially responsible practices into the core of their business and making philanthropy a cornerstone of their corporate strategy.
Studies show that companies that give a percentage of their profits to charity perform better than those who don’t and customer satisfaction levels are also higher for companies that make charitable contributions.
Organisations like Nike and Unilever have led the way when it comes to embedding responsible business practices into their culture and operations. But more and more companies are now starting to follow suit and we’re starting to see an increase in interest in incorporating social responsibility into their business models.
Products like Incitement’s embedded charity marketplace are picking up steam quickly as organisations are looking for more natural and organic ways to integrate charitable giving into their corporate strategies.
An easy plug-and-play charity marketplace directly embedded into the apps and websites of organisations gives users and customers the ability to donate to the causes they love as a part of the ecosystem of the organisation – fully embedded.
We’re seeing a lot of interest from organisations that want to incorporate philanthropy into their business strategy but aren’t sure how to go about it or which charities they should support. Through innovative, and more importantly, embedded solutions, organisations can offer their customers and supporters a way to co-create meaningful impact together.
Traditional corporate social responsibility often is short-term and highly geared toward generating awareness for the grant-makers. It is often used as a means of advertising or tax-deduction packaged as doing good. In 2023 we’ll see more tailored approached through the use of IoT and AI, bringing embedded solutions to the mainstream and helping organisations embed charity in the very heart of their business model in order to remain competitive in the market place.
3. More transparency and better traceability
Third-party stewardship organizations provide crucial services to ensure the effective management and oversight of philanthropic resources from inception to distribution, and in doing so, they often play a critical role in the allocation of donor gifts—both among participating nonprofits and to the best nonprofit for each particular funding need. However, there is no single, official source for information about funders’ activities and outcomes; for the most part, this information resides only with the organizations that receive the funds, creating a lack of transparency within the sector and preventing donors from understanding the impact of their charitable investments.
The blockchain promises to revolutionize this state of affairs by allowing users to securely track every transaction in a completely transparent manner. By recording data about grants on the blockchain, we can also dramatically increase transparency by giving users access to the data they need to follow the flow of funds through the system so they can see exactly where their money is going and how it is being used. This information can then be used to determine whether a particular grant is having a positive or negative impact on the recipient organization and the community it serves.
4. Community building and increased participation
Greater access to technology has the potential to open up new avenues for philanthropy that increase participation and engagement among community members and key influencers. For example, through the use of innovative technologies, we can provide donors with the ability to channel more of their philanthropic capital into purpose-driven projects and initiatives by providing new opportunities for community-based organizations to connect directly with supporters and receive donations directly.
Making charitable donations through online platforms also makes it possible to involve a broader range of individuals in the philanthropic process by creating a more democratic and inclusive approach to giving that is open to everyone. For instance, blockchain-based platforms make it easy for individuals to give small amounts of money directly from their bank accounts or credit cards rather than having to fill out lengthy application forms or wait weeks for the funds to clear before being able to make a donation.
In addition to increasing accessibility and reducing the amount of time it takes to make contributions, these platforms also provide donors with greater flexibility with respect to the timing of their donations – enabling individuals to choose the date on which their contributions are made and the day of the week on which they will be made so as to minimize any inconvenience to themselves or others.
By making it easier for individuals to donate small amounts on a regular basis rather than making a single larger donation once or twice a year, these online platforms can encourage more frequent and more consistent participation in charitable giving. This increased level of engagement can have an important impact on the long-term health of nonprofit organizations as well as the broader community they serve by helping to foster a culture of philanthropy within communities that might otherwise not be as willing or able to provide financial support to charitable organizations.
5. Decreased charity dependency through revenue differentiation
Charitable organizations rely on regular donations from individuals and companies to fund their operations and ensure that their services remain accessible to members of the community who need them most. With the rise of AI-powered marketing tools, generating revenue online other than donation revenue has never been more accessible.
Awareness around these tools will increase rapidly amongst charities. How they could sell NFTs, how they could monetize their AI-written content, how they could earn from referrals, how they could increase their public accountability through the adoption of blockchain and better attract (repeat-)grants, how they could generate higher reach through AI-powered advertising. The list goes on. Charities will start picking up on these new opportunities offered by these exciting technologies and they will start separating themselves slowly but surely from the sole reliance of 3rd party donations.
Charities will strengthen their revenue models by moving from relying exclusively on donations from individuals to adopting a diversified approach that includes a variety of income streams. This is, in my view, the most promising development considering that charitable organisations may eventually be able to compete in the same arena as non-profit organisations as they are able to attract more talented staff with higher salaries, increase operational efficiencies by leveraging new technologies and develop new revenue streams that will significantly improve their ability to support their missions.