ESG integration is the practice of considering environmental, social, and governance factors in the investment process. It can be implemented across all asset classes.

ESG Factors in Investment Analysis

Environmental factors include natural resource management, pollution prevention, water conservation, energy efficiency and reduced emissions, the existence of carbon assets, and adherence to environmental safety and regulatory standards.

Social factors generally pertain to human rights and welfare concerns in the workplace, product development, and, in some cases, community impact.

Governance Factors: Board independence/diversity, audit committee structure, bribery/corruption, executive compensation, shareholder rights, lobbying/political contributions, whistleblower schemes.

The trend toward increased integration of ESG considerations into investment decisions has been driven by two key factors. First, companies (and their investors) have suffered significant losses due to their inability to adequately manage ESG issues. Second, younger investors are attaching greater importance to ESG issues when making wealth management decisions.

ESG Implementation Methods

Asset managers and asset owners can incorporate ESG issues into the investment process in a variety of ways.

• Negative screening is a type of investment strategy that excludes certain companies or sectors from investment consideration because of their underlying business activities or other environmental or social concerns.

• Positive screening and best-in-class strategies focus on investments with favorable ESG aspects.

• Thematic investing focuses on a single factor, such as energy efficiency or climate change.

• Impact investing strategies are targeted investments, typically made in private markets, aimed at solving social or environmental problems.