Re-thinking ESG: Does it drive outperformance?
Jury is still out on that question as compelling evidence from research over a sufficiently long period is in short supply
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OVER the past year, sustainable investing - or the application of ESG principles to investments - has become all the rage.
ESG refers to environmental, social and governance factors. In the context of funds, fund managers take a number of approaches. ESG may be integrated into the investment process in research and security selection, for instance, using both third-party ratings and fund proprietary research.
Managers may also use exclusionary screens. This is by far the largest ESG category with US$11 trillion in assets in 2018, according to the Global Sustainable Investment Alliance. Or, they may launch thematic funds focusing on investments in themes like renewable energy and water, among others.
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