What is ESG Investing?
ESG stands for Environmental, Social and Governance.
Increasingly, investors are concerned that the companies they invest their money in, may not hold the same core values that they do when it comes to the impact of the company on the environment, the treatment of their employees and the impact of the company on the wider community.
We have seen larger institutional investors use their considerable voting power at the annual general meetings of companies to vote against the board where they believe the company’s behaviour in these areas is negative. In some instances, these investors have disinvested in the company altogether where they do not feel changes are likely.
Some investors take this further and will only invest in funds where they believe their investment will have a positive impact on the environment. This is known as Impact Investing and examples of this can be seen in the recycling and renewable energy sectors.
Some other terms used to describe different aspects of this overall sector of investing are as follows:
– Sustainable investing
– Thematic investing
– Socially responsible investment
– Green investing
– Responsible investing
– Values aligned investing
– Activist investing
– Responsible project finance
– Mission led investment
– Impact investment
Here are some examples of factors affecting ESG investing decisions:
|Climate change and carbon emissions||Gender and diversity policies||Board diversity|
|Air and water pollution||Safety and quality controls||Corporate ethics|
|Energy efficiency||Human rights||Executive compensation|
|Waste management||Labour standards||Bribery and corruption policies|
|Water scarcity||Privacy and data security||Lobbying activities|
|Biodiversity and deforestation||Employee engagement||Accounting practices|