
What is ESG?
Environmental: How companies and industries manage their impact on the environment. This could include climate change, deforestation, pollution and waste management.
Social: How a company or industry manages its impact on society. This could include how they treat employees and suppliers, community engagement and health and safety.
Governance: Whether a company has good business practices. These could include the diversity of a company’s board and leadership team, executive pay or how they handle tax.
When discussing the broader ESG investment landscape there are a variety of approaches to choose from, some having very different objectives. The five approaches to ESG investing described below are a useful starting point to understand the options available.
ESG investment approaches
Exclusionary portfolio screening
Inclusionary portfolio screening
ESG integration
Impact investing
Stewardship
ESG growth
Aligning investments with preferences
The adoption of ESG investing has accelerated as more investors seek out investments that reflect not only their financial goals but their personal preferences too.
ESG: Moving to the mainstream
ESG is no longer niche. Many companies now consider ESG matters to be at the heart of the sustainability of their business strategy and operational activities. It is a significant and growing part of the global finance sector.
What makes ESG an enduring trend?
A combination of factors has contributed to the advancement of ESG to the mainstream investing landscape.
Proliferating ESG data
There are now more than 11,000 public companies worldwide disclosing ESG indicators.
Developing regulation
Regions like Australia where regulation has developed have seen increased ESG product adoption and growth.
Investor preferences
Research shows everyday investors - but millennials and women, in particular - view social and environmental impacts as important to their investing choices.
Investment rationale
Recent studies show ESG having a neutral-to-positive impact on company performance. There are growing bodies of research that conclude ESG investing can achieve competitive rates of return.