White Paper

Invest in the ABCs of ESG

David Schofield President, International Division
John Brown Executive Vice President, Head of Global Client Development

Key Ideas

  • Consideration of environmental, social and governance (ESG) issues have captured the attention of institutional investors worldwide, but understanding what to do about them is more challenging.
  • It may appear that there are different definitions of ESG investing, but most approaches can be boiled down to one – or more – of four basic approaches: screening, integration, active ownership, and impact.
  • Whether or not ESG considerations have a positive impact on corporate performance and investment returns has been widely debated; results from academic and professional studies should be interpreted cautiously. Ultimately, ESG issues must be balanced carefully with the maximization of risk-adjusted returns.
  • As ESG investing becomes more mainstream, institutional investors must be cognizant of the increasing oversight and regulation surrounding ESG. They should also recognize ESG megatrends that are capturing global attention, like climate change, income inequality and corporate leadership behavior.

What is ESG?

Environmental, social, and governance (ESG) refers to aspects investors may consider when evaluating a firm’s sustainable or ethical practices. These aspects also present opportunities and risks that can affect a company’s financial performance.