ESG 101:
What is ESG?
A Guide for Sustainable Business Development
ESG: An Investment Principle
Sustainable investment, socially responsible investing, mission-related investing, and screening are all terms that are frequently used interchangeably. As the threat of climate change and resource depletion has increased, investors may choose to consider sustainability issues when making investment decisions. The challenges are often externalities, which are effects of a company’s activities that are not solely determined by business mechanisms. In the investment decision-making process, we define ESG as the consideration of environmental, social, and governance factors alongside financial factors.
ESG Investment Objectives
We’ve defined three common investment objectives when evaluating an ESG strategy under the ESG umbrella: convergence, values, and effect. Institutional investors may use a variety of strategies to achieve these goals, including ESG integration, exclusionary or negative screening, and thematic investing
Minimize the Investment Risk with ESG
When implementing an ESG investing strategy or applying ESG across a portfolio, investors can consider a variety of ESG variables, metrics, and data. Climate change, human resources and labor management, corporate governance, gender equity, privacy and data protection are only a few examples of industry-specific core concerns.
Values
Objective: Investing in alignment with an organization’s or individual’s moral principles and convictions is the Values Objective.
Exclusionary Screening: Excluding securities based on an organization’s or individual’s principles, standards and norms, or other environmental, social, and governance (ESG) factors.
Social Responsible Investing: A conventional umbrella term that can be used to describe a values-based approach to investing with the aim of minimizing negative externalities exposure. Often known as “norms-based investing” or “ethical investing”.
Faith-Based Investing: Investments in companies whose corporate practices are considered as undermining the principles of a given religion are often avoided in faith-based investing. It can also contain goals to have observable social results.
Integration
Top-Down Integration:
Investing that considers environmental, social, and governance (ESG) risks and opportunities in a systematic and explicit manner
Best In-class:
Choosing companies with stronger or improving environmental, social, and governance (ESG) profiles than their sector peers.
Thematic Investing:
Investing based on patterns or structural shifting trends, such as social, industrial and demographic trends.
Active Ownership:
Engaging in ESG conversation with businesses and using both ownership rights and voice to affect progress.
Impact
Objective:
Investing with the intention of producing beneficial social or environmental outcomes as well as a financial return.
Impact Investing:
Impact investing is defined as investing with the goal of generating measurable social or environmental benefits.
Mission-Related Investing:
Aligning investments with organizational values or philanthropic goals is recognized as mission-related investing. Intentional to achieve measurable beneficial social or environmental results
