Making investment decisions according to stocks' social risks

PFIZER stock was riding high in June 2015, up 128 per cent in five years, making it the second most valuable US drugmaker. Nine out of 10 Wall Street research analysts recommended that investors hold it in their portfolio, if not buy more.

That same month, however, a different type of research firm downgraded Pfizer to its lowest rating, reflecting what it considered increased risks from factors that other Wall Street analysts typically ignore: environmental, social and corporate governance issues, or ESG.

Investing based on so-called ESG factors has mushroomed in recent years, driven in part by big pension funds and European money managers that are trying new ways to evaluate potential investments. The idea has changed over the last three decades from managers' simple exclusion from their portfolios of "sin stocks" such as tobacco, alcohol and firearms makers to incorporation of ESG analysis into their stock and bond picks.