What is ESG?

ESG investing is an approach that focuses on material factors of the environment, society and governance, within the broad category of sustainable investing, which focuses on ESG as well as investment in non-profits, non-governmental organizations, and start-ups with social justice and environmental goals. Examples of approaches within this category are Socially Responsible Investing and Impact Investing.

The largest equity asset managers care about ESG because they understand that consumer values and consumer spending are pushing companies to improve ESG practices and performance. Asset managers are increasingly being held to account and rated for ESG awareness by their shareholders (pensions, endowments, UHNWs), and major index providers are rating companies based on publicly available information and sharing their ratings with investors.

  • Portfolio managers increasingly demand corporate executives focus on ESG factors that they believe drive long-term financial performance, and regulatory standards are being developed on the back of the UN Principles of Responsible Investment (PRI) initiatives.
  • The global health pandemic has made it even more important for companies to take care of their customers and employees, reinforcing customer stickiness and employee loyalty.
  • There will be increased focus on social responsibility as a result of the pandemic, which feeds into the “social” category of ESG. Investors will watch how companies handle issues, and systemic health risks will create more public concern about other systemic risks, such as climate change.  COVID-19 has been linked to climate change and disruption of natural habitats leading to outbreaks of infectious disease.