'ESG' funds that integrate environmental social and governance criteria into how they select investments are not 'fluffy'. They are not necessarily designed to 'do good'. They are about improving risk-adjusted returns.
Sitting in a conference on climate change recently, I was struck by the persistent perception that ‘ESG’ is about ethically responsible investment. That it is designed to ‘do good’ rather than generate outperformance. This is perhaps the biggest barrier to mass uptake of funds that integrate environmental, social and governance (ESG) criteria into their stock selection.
It’s a simple taxonomy problem.
ESG v impact
The issue stems from the fact that, as yet, the evidence to show ethical or impact investments outperform traditional benchmarks is inconclusive. Yet, for ESG, there is a highly compelling and growing body of evidence that shows it outperforms over the long run.
The reasons for this are intuitive.
“If you’re not looking at climate change,
you’re not doing your job as an investor.'
Sandra Carlisle, head of responsible investment,
HSBC Global Asset Management
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A quick cuppa with Faith Ward, Chief Responsible Investment and Risk Officer, Environment Agency Pension Fund