Environmental, social and governance (ESG) integration is the practice of incorporating ESG information into investment decisions to help enhance risk-adjusted returns.
Investing to make an impact can be achieved through investment strategies that integrate Environmental, Social and Governance (ESG) factors into the stock selection process. These strategies enable investors to reap the benefits of responsible, sustainable business. Meanwhile, they promote positive change through company engagement and raising awareness of ESG issues.
How sustainability considerations are sourced, assessed and incorporated will vary with a client’s portfolio objective, investment style and asset class – but all active investment teams follow the same principles in their approach to ESG integration: this includes regularly reviewing exposure to ESG risks, using a breadth of sustainability-related data and analytics to develop investment-relevant insights, and providing transparency around how sustainability-related information informs portfolio management practices. ESG integration is achieved through stewardship and engagement practices and transparent reporting of sustainability characteristics.
Reasons for Rising Interest in ESG Investment Principles
- A growing awareness that ESG best practices define quality companies
- Performance studies that are becoming difficult to dismiss
- The evolution toward active ESG strategies – beyond passive negative screens and overlays – integrating investment with engagement, advocacy and education
- A broader interpretation of fiduciary responsibility
- Investors wanting to make an impact with their dollars