Investing Basics: The ABC of ESG



Investing Basics: The ABC of ESG


ESG (Environmental, Social and Governance) investing has become a central theme across the investment community; the events of 2020 served as a tailwind, accelerating related trends that broadly drove strong performance and investor interest – by Christian Leeming

Asset managers are now making headlines with their ESG commitments, ESG strategies are topping the fund launch tables, and certain financial regulators consider ESG to be a top priority.

What is all the fuss about? Here are the three main categories of ESG investment strategies and  some of the considerations to be aware of.

Key takeaways


  • Most ethical or socially responsible strategies are built on an opportunity-set that excludes investments in enterprises deemed as morally deficient (often referred to as ‘sin stocks’).
  • ‘Integrated investing’ balances ESG considerations with more traditional financial analysis. One approach is to consider ESG as a risk category to help provide context on the fair value of an investment. Another approach is to focus on stewardship (i.e. company engagement).
  • ‘Impact investing’ could initially be defined as actively directing capital to organisations that provide a clear solution to an environmental or social problem and therefore deliver a positive ‘impact’ on society. It now includes a sub-category of strategies focused on financing or encouraging change in broader economic activity.
  • Challenges associated with ESG investing include a lack of sufficient data disclosure, the practice of greenwashing and estimating the impact ESG will have on investment performance. Despite the challenges, it is clear that ESG investing is here to stay.


Leave a Reply

D2 Interactive