ESG - What matters to investors?


For investors, the main benefits from ESG are to; 1) maximise risk-adjusted returns, 2) lower funding costs (eg lower beta), and 3) attract new sources of capital. Their main challenges are 1) confusing terminology, and 2) unclear expectations.



There are three main ways that investors use ESG while investing: 1) Exclusion (eg exclude stocks), 2) Integration (include stocks), and 3) Impact (green investments for projects):

  1. Exclusion = Excluding companies or industries from portfolios where they are not aligned with an investors values.
  2. Integration = Integrating ESG factors into traditional investment processes to improve portfolio risk/return.
  3. Impact Investing = Investing with the intention to generate measurable environmental and social impact alongside a financial return.



In terms of including ESG metrics in their models, analysts often think about issues such as: 1) Stranded assets; 2) onerous contracts; 3) potential fines/litigation/compliance costs; and 4) lost factory days due to air quality.



A key issue therefore given the number of different metrics incorporated in ESG, is how can companies and investors keep track. For this there are a number of standards; including:



For Companies:

SASB (Sustainability Accounting Standards Board): https://www.sasb.org/

TFCD (Task Force on Climate-Related Financial Disclosures): https://www.fsb-tcfd.org/



For Investors:

UNPRI (United Nations Principles of Responsible Investing): https://www.unpri.org/



Data Providers:


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