ESG Investing

Goals

To understand what investors are concerned about when it comes to ESG and what they want from sustainable investments.

Early Findings

  • According to a Morgan Stanley poll, 84% of investors are "actively considering" using ESG standards in their investing activities.
  • Companies are becoming more aware of how their ESG principles are integrated into brand value and customer perception.
  • There are different approaches to ESG investing. Some use a barebones "negative screening", which just means avoiding certain sectors like tobacco or oil & gas. Other investors have a more proactive approach, deliberately seeking positive social or environmental impact in the companies they invest in.
  • Furthermore, investors can broadly be segmented in active versus passive. Passive investors are happy to use third-party aggregate data or a single ESG score to determine whether they are interested in investing or not. An active investor takes a more involved approach, using data from several sources and making their own judgment on whether they are happy with the ESG initiatives of that investment.
  • ESG is not a defined metric, hence why investors or fund managers tend to make their own definitions of what they qualify as ESG investing.
  • One fund manager states that clients have "varying degrees of understanding of what ESG integration means."
  • There is no universally-accepted standard for ESG-type reporting. This may lead to some smaller companies have an artificially lower ESG score as they do not have the resources to compute all data points.
  • Moringstar's Sustainbility Rating is a "risk" rating using all three factors (environmental, social and governance) to assign an absolute ranking to portfolio companies.
  • MSCI assigns ratings based on "leader", "average" or "laggard", more similar to a credit bureau rating. They evaluate funds based on peer groups, carbon intensity, sustainable impact, exclusion criteria and more.

Proposed next steps:

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