Evaluating corporate behavior through ESG investment.
Environmental, Social, and Governance (ESG) investing, is responsible investing or impact investing, but at the core, there is a rising trend in the investment industry to seek exposure to companies who follow certain principles. Those principles have a positive and a negative aspect: ESG investing seeks companies with a strong track record of labor practices and health and safety and avoids exposure to the weapons, fossil fuels, and X industries.
ESG is not a separate asset class or a unique investment strategy, it is a matter of investor preference to organize a plan around a series of values. Investment firms and banks all have asset managers and financial advisors who can guide investors in making these kinds of investments, and some are more specialized than others. Further, this preference for responsible investing is on the rise, especially with younger people.
Perhaps the biggest misgiving about ESG investing is the notion that one has to choose between getting the highest returns versus choosing a more ethical approach. But matters aren’t so simple: a good investment strategy identifies the potential for growth, not necessarily the most trendy or largest companies. Identifying good companies to invest in goes hand-in-hand with identifying companies who are responsible for how they manage their growth. In fact, a study
from 2015 aggregated research from over 2,000 studies showed that 90% of the time ESG principles in one’s strategies have positive impacts on investment results. Furthermore, the risk associated with this kind of investing tends to be lower.
Already, institutional investors are moving to this type of investing, to ensure their institutions represent the best principles and practices. The Responsible Investment Association showed in its latest report
responsible investing has grown rapidly, from $517.96 billion in 2010 to $2.13 trillion in 2017 to encompass over 50% of the total assets under management (AUM) in the industry.
In short, more players in the financial services industry are taking notice of this growing investment trend, which shows no signs of slowing down. With trillions in wealth about to pass down from the Baby Boomer generation to members of Generation X and Millennials, the financial services industry is preparing to see investment priorities shift. Further, they are likely to shift dramatically more towards ESG investing in the future.
Not all ESG investment strategies are created equal -- if you are interested in learning more about the trends and drivers of ESG investing, please contact us now
and reinforce your organization’s position with actionable intelligence.