What is Environmental, Social and Governance (ESG)?
ESG – Environmental, Social and Governance refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business.[1]
Responsible investment – ESG – Environmental, Social and Governance
The three domains of social, environmental and corporate governance are intimately linked to the concept of responsible investment. RI began as a niche investment area, serving the needs of those who wished to invest but wanted to do so within ethically defined parameters. In recent years it has become a much larger proportion of the investment market.
Responsible investment
The three domains of social, environmental and corporate governance are intimately linked to the concept of responsible investment. RI began as a niche investment area, serving the needs of those who wished to invest but wanted to do so within ethically defined parameters. In recent years it has become a much larger proportion of the investment market.
Investment strategies
RI or Responsible Investment seeks to control the placing of its investments via several methods:
- Positive selection; where the investor actively selects the companies in which to invest; this can be done either by following a defined set of ESG criteria or by the best-in-class method where a subset of high performing ESG compliant companies is chosen for inclusion in an investment portfolio.
- Activism; strategic voting by shareholders in support of a particular issue, or to bring about change in the governance of the company.
- Engagement; investment funds monitoring the ESG performance of all portfolio companies and leading constructive shareholder engagement dialogues with each company to ensure progress.[28]
- Consulting role; the larger institutional investors and shareholders tend to be able to engage in what is known as ‘quiet diplomacy’, with regular meetings with top management in order to exchange information and act as early warning systems for risk and strategic or governance issues.[29]
- Exclusion; the removal of certain sectors or companies from consideration for investment, based on ESG-specific criteria.
- Integration; the inclusion of ESG risks and opportunities into traditional financial analysis of equity value.
Src: https://en.wikipedia.org/wiki/Environmental,_social_and_corporate_governance