What is ESG Investing?
There are lots of methodologies and broad-based philosophies that inform approaches to investment in global markets. The concept of ‘ESG’ (Environmental, Social and Governance) is a relatively new influence on business and capital markets, given an increasing awareness of some of the global adverse effects of business activity on the wider environment, labour force and global population. In turn, this awareness has increased pressure for change, not only at an individual level, but also for businesses that are having to adapt and change their operating models to be sure of attracting future capital investment.
As a concept ESG is increasingly gaining traction and support from more environmentally conscious investors, be they large funds or individual retail investors. For many large pension funds, ESG is now a front and centre consideration of the construction of portfolios.
So, what exactly is the concept of “ESG”? Well in simple terms it is a framework that underpins business strategy. ESG takes explicit account of the potential adverse consequences of business activity and aims to mitigate, or even eliminate, these adverse impacts and increase positive societal outcomes. ESG investment approaches will target those companies whose strategies align with these aims directly, or otherwise demonstrate a level of commitment to being responsible and ethical businesses.
In order to help fund managers and retail investors to assess a company’s outlook. Independent ratings are used, where available, to examine corporate level behaviours as well as activity against a framework of environmental, social, and governance criteria. ESG centred investing therefore, supports businesses that operate in an ethical and sustainable way, thus enabling targeted capital investment to achieve wider positive change.
Josh Grice 2021