The rise of Environmental, Social and Governance Investing.
The impact companies have in terms of Environmental, Social and Governance (ESG) factors are becoming more important to investors. They are taking an interest in how their investments affect the world around them.
What is the official definition of ESG?
Over the last few years, Environmental, Social and Governance (ESG) has started being used more to describe how well a business is managed than to explain how sustainable its product or service is. More recently, the mainstream press has been using ‘ESG’ as a catch-all term for investing with a ‘responsible’ or ‘ethical’ screen. There are no official industry or regulatory standards for comparing these different approaches. However, with (ESG) now so important, some key definitions for certain factors have been accepted across the industry.
Our approach to (ESG)
It is important that a portfolio must deliver on its investment objectives, without a detrimental impact on society and the wider environment.
How (ESG) investing is implemented
The principles set out in the UN Global Compact are central to (ESG) investing. In September 2015, all 193 Member States of the United Nations adopted a plan for a better future for all. This included setting out Sustainable Development Goals along with ten principles. These helped to lay out a path for the next 15 years to end extreme poverty, fight inequality and injustice, and protect our planet.
What do we define as the E, S and G factors?
Investing with consideration for the environment. This includes working to reduce pollution and climate
change, and to source sustainable raw materials using clean energy sources. The focus is on how a firm approaches environmental concerns, the ecological impact of its products and its carbon footprint.
Investing with consideration for human rights, equality, diversity and data security. The focus is on
how companies are incorporating these. It’s also about looking to see if each is actively investing/ working towards a healthier and higher quality of life for staff and stakeholders. Whether companies expect the same set of standards and values from their suppliers is also considered.
Investing with consideration for positive employment practices, business ethics and diversity.
The focus is on how a company builds its management structure and works with all its different stakeholders. How does it approach investor and employee relations? Does the board work with transparency, honesty and integrity? Does this filter down to the rest of the company?
The UN Global Compact Principles:
Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and
Principle 2: make sure that they are not complicit in human rights abuses.
Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
Principle 4: the elimination of all forms of forced and compulsory labour;
Principle 5: the effective abolition of child labour; and
Principle 6: the elimination of discrimination in respect of employment and occupation.
Principle 7: Businesses should support a precautionary approach to environmental challenges;
Principle 8: undertake initiatives to promote greater environmental responsibility; and
Principle 9: encourage the development and diffusion of environmentally friendly technologies.
Principle 10: Businesses should work against corruption in all its forms, including extortion
Aaron Tawny have increased their awareness of ESG investing and look forward to discussing the opportunity and options available with our clients.