ESG Considerations Becoming More Important for Investors

(3BL Media/Justmeans) – Socially responsible investing (SRI) originally began by screening out ‘sin stocks’ such as tobacco and gambling. But over the years, SRI has evolved with deeper integration of environmental, social and governance (ESG) risks and opportunities into investment analysis. Thematic ESG investing now focuses on areas such as climate change and water scarcity, and impact investing aims to generate a beneficial social or environmental impact alongside financial return.

The recently published Market Intelligence paper, “ESG Scrutiny: Lessons from Manager Selection,” by bfinance reveals that the universe of products and strategies is shifting away from negative screens towards bottom-up factor integration and active engagement. The number of ESG offerings continues to rise, but it is increasingly important to distinguish between box ticking and substance.

ESG-focused investors are making it a priority to move beyond equity and integrate relevant factors into their fixed income and alternative investments. Many ESG-orientated investors are open to working with managers that are still refining their responsible investment approach, while others require strongly institutionalized processes.

Among public bond managers, there is a nascent universe of ESG-branded strategies, mostly in the corporate bond space. This is particularly true in the case of corporate bonds in emerging markets where governance concerns are higher. bfinance notes a rise in “thematic” public fixed income, particularly with the issuance of an increasing volume of green bonds used to fund environmentally friendly projects.

According to Joey Alcock, Senior Associate, Public Markets Advisory team, while there are a myriad of different reasons driving heightened interest from asset owners in ESG-integrated investment approaches over recent years, the assessment of a manager’s ability to generate performance should still remain front and center for trustees. As the universe of managers offering active ESG-integrated equity strategies continues to expand, the challenge to identify those which will deliver on both dimensions becomes increasingly complex.

Source and Image: Blue and Green Tomorrow