Getting to Know ESG

ESG Investing – A Practical Guide


Environmental, Social, and Governance (or ESG) investing is gaining popularity amongst many different types of investors.  It’s easy to understand broadly the benefits of socially-responsible investing, but there’s actually a lot behind it.  One thing is for certain, the opportunity to do well and do good within a portfolio is an attractive concept to many.

Learn more about ESG investing with our practical guide below.




What is ESG?

E Environmental


Environmental reflect, in short, how a company affects nature, and vice versa.

This may include factors such as climate change, carbon emissions, water usage, waste, or renewable energy.


S Social

 

Social examines a company’s relationship with its stakeholders.

This may include reviews of human rights, employee relations, working conditions, and use of child labor among customers, suppliers, employees and their community or region.


G Governance

 

Governance focuses on corporate leadership, policies and company structure.

This may include board and management diversity and structures, executive pay, auditing and compliance policies, corruption prevention, or transparency.




What is ESG?


E

Environmental

Environmental reflect, in short, how a company affects nature, and vice versa.

This may include factors such as climate change, carbon emissions, water usage, waste, or renewable energy.


S

Social

Social examines a company’s relationship with its stakeholders.

This may include reviews of human rights, employee relations, working conditions, and use of child labor among customers, suppliers, employees and their community or region.

G

Governance

Governance focuses on corporate leadership, policies and company structure.

This may include board and management diversity and structures, executive pay, auditing and compliance policies, corruption prevention, or transparency.



"We believe that ESG integration is aligned with our fiduciary duty to serve our clients, and this aligns with who we are as a firm. Through our unique ownership structure, generating results for clients can also improve health and save lives. Together, we can be a powerful force for good.“

Jonathan Thomas, President, CEO




Let’s Clear Up Any Confusion

There are a lot of buzz terms when it comes to responsible investing. Here’s what they mean:


Exclusionary/Negative Screening

Applying norms-based or values-based (SRI) screens to exclude companies whose business activities do not meet client-specific values or guidelines or that violate “universal norms.”
 

ESG Integration

Systematically integrating extra financial variables or issues not captured by traditional financial analysis in an effort to help manage downside risk or capture upside potential.
 

Positive/Best-in-Class ESG Tilt

Putting greater weight on companies with the strongest ESG characteristics (e.g., ESG ratings or scores, carbon emission intensities).
 

Thematic Investing

Investing in companies whose business activities are aligned with a specific theme or series of themes (e.g., clean tech) or whose management meets a thematic threshold (e.g., strong board gender diversity).
 

Impact Investing (see below)

Generating a measurable social and environmental impact alongside a potential financial return. The impact could also be associated with a specific theme or framework (e.g., UN Sustainable Development Goals).
 

Combined Approaches

Where appropriate, approaches may be combined. For example: A clean tech thematic fund looks to map investments to selected UN Sustainable Development Goals while integrating ESG factors to select companies for inclusion.




Impact Investing Addresses the Sustainable Development Goals (SDGs)

A collection of 17 global goals set by the United Nations General Assembly.



Who is Driving ESG?

Everyone, really.  But many are consumers. Young consumers.

Employees, customers and institutions demand that businesses rethink the way they work in the world to be more purpose-driven and sustainably-focused.


Survey Says…

Consumers Are Demanding More Responsible Investing

Of Respondents

Found social impact to be important in their investing decisions, an increase of 12 % from two years ago

(American Century Investments, 2019)

Of Respondents

Were millennials in the U.S. who were attracted to the idea of impact investing
 

(American Century Investments, 2019)

Of Respondents

Were consumers who agreed they would switch to a brand that supports a cause they believe in

(Mintel, July 2018)


And it’s not just a trend.

In 2019 there were $20.6 billion in net flows into ESG-related investments. In 2020, that number had risen to $51.1billion—nearly a 150% rise!

(source: Morningstar Direct, Dec. 2020)



Why ESG?  What’s in it for Me?

Investing in companies that are good for the world and good for society isn’t just about making you feel good. Integrating these factors into investment analysis may help to…

Manage Risk
Provide opportunities
Positive impact the world


Some Things to Consider

ESG approaches vary based on types of assets, time horizon, objectives and more. There are many different ways to apply ESG to investment choices.


ESG objectives  •  Research  •  Long-term  •  Benchmarks  •  Metrics




A strategy or emphasis on environmental, social and governance factors ("ESG") may limit the investment opportunities available to a portfolio. Therefore, the portfolio may underperform or perform differently than other portfolios that do not have an ESG investment focus. A portfolio's ESG investment focus may also result in the portfolio investing in securities or industry sectors that perform differently or maintain a different risk profile than the market generally or compared to underlying holdings that are not screened for ESG standards.

Sustainable Development Goals (SDGs) are a collection of 17 global goals set by the United Nations General Assembly. They were developed by a global team of industry and government leaders and adopted by all 193 member states, the SDGs include 17 goals and 169 attendant targets aimed at solving some of the world’s most pressing problems by 2030. The goals include eradicating poverty, providing environmental resources, and achieving gender and income equality.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.