What is ESG?


 

What is ESG?

ESG investing is a term that is often used interchangeably with sustainable investing, socially responsible investing, mission-related investing, or screening.


Remy Quote

 
 

At MSCI, we define ESG Investing as the consideration of environmental, social and governance factors alongside financial factors in the investment decision-making process.

Remy Briand, Managing Director, MSCI ESG Research

What are the common investor objectives?

What are the common investor objectives?

When it comes to ESG investing, one size does not fit all. Under the ESG investing umbrella, we have identified three common investor objectives or motivations when considering an ESG strategy: Integration, Values and Impact.

In order to achieve these objectives, investors may pursue different approaches such as ESG integration, exclusionary or negative screening, or thematic investing, to name a few. Here we share the differences between socially responsible investing (SRI), values-based investing, impact investing, and other commonly used terms in the market.


What are the common investor objectives?

 

 

Objective:

Investing with a systematic and explicit inclusion of ESG risks and opportunities with the intention to enhance long-term risk-adjusted returns.

 

 

Common approaches:

Bottom-up ESG integration
Investing with a systematic and explicit inclusion of ESG risks and opportunities in investment analysis.
Top-down ESG integration
Investing with a systematic and explicit inclusion of ESG factors in portfolio construction.
Best-in-class selection
Preferring companies with better or improving ESG profiles relative to sector peers.
Thematic investing
Investing based on trends or structural shifts, such as social, industrial and demographic trends.
Active ownership
Entering into a dialogue with companies on ESG issues and exercising both ownership rights and voice to effect change.

 

 

Objective:

Investing in alignment with an organization or individual's moral values and beliefs.

 

 

Common approaches:

Best-in-class selection
Preferring companies with better or improving ESG profiles relative to sector peers.
Exclusionary or negative screening
Avoiding securities on the basis of an organization or individual's values, standards and norms, or other ESG considerations.
Active ownership
Entering into a dialogue with companies on ESG issues and exercising both ownership rights and voice to effect change.
Socially responsible investing (SRI)
A traditional umbrella term that can be used to describe a values-based approach to investing, with an eye towards reducing exposure to negative externalities. Also known as "ethical investing" or "norms-based investing."
Faith-based investing:
Aligning investments with faith-based values. Faith-based investing often involves avoiding investments in companies whose business activities are viewed as violating the teachings of a given faith. It may also include aims to generate measurable social (or occasionally environmental) impacts.

 

 

Objective:

Investing with the intention to support positive social or environmental benefits alongside a financial return.

 

 

Common approaches:

Impact investing
Investing with the intention to generate measurable positive social or environmental benefits.
Thematic investing
Investing based on trends or structural shifts, such as social, industrial and demographic trends.
Active ownership
Entering into a dialogue with companies on ESG issues and exercising both ownership rights and voice to effect change.
Mission-related investing
Aligning investments with organizational values or to further philanthropic goals. Mission-related investments often aim to generate measurable positive social or environmental impacts. Often interchangeable with "impact investing."

Why is ESG Growth Accelerating?

 

Why is ESG Growth Accelerating?

Global sustainability challenges such as flood risk and rising sea levels, privacy and data security, demographic shifts, and regulatory pressures, are introducing new risk factors for investors that may not have been seen previously. As companies face rising complexity on a global scale, investors may reevaluate traditional investment approaches.

  • The world is changing

    Global challenges, such as climate risk, increased regulatory pressures, social and demographic shifts and privacy and data security concerns, represent new or increasing risks for investors. The economic pressure the COVID-19 pandemic has placed on some industries has affected companies’ exposure to ESG risks and their ability to manage them. Companies face rising complexities and greater scrutiny if they are not adequately managing their ESG or climate risk.
  • A new generation of investors

    The interest from millennial investors around the world has already helped drive the rapid growth in ESG investment. In a 2018 survey, Bank of America Merrill Lynch said that they could "conservatively estimate" USD 20 trillion of assets growth in U.S.-domiciled ESG funds alone over the next two decades.1
  • Better data and technology for more meaningful insights

    Advanced technology, including artificial intelligence (AI) and alternative data extraction techniques help minimize our reliance on voluntary disclosure from companies. Machine learning and natural language processing help us increase the timeliness and precision of data collection, analysis and validation to deliver dynamic content and financially relevant ESG insights.

.


Dive into ESG Investing

Dive into ESG Investing


The Evolution of ESG Investing

The Evolution of ESG Investing

ESG investing is growing exponentially as more investors and issuers utilize ESG and climate data and tools to support their investment decision-making.

Foundations of ESG Investing

Foundations of ESG Investing

Changes in a company’s ESG characteristics may be a useful financial indicator.

<span class="header-text">Deconstructing ESG Ratings Performance</span>

Deconstructing ESG Ratings Performance

How do ESG factors perform time horizon, sector and weighting?

ESG Funds in Focus

ESG Funds in Focus

Quantifying ESG risks and opportunities for mutual funds and ETFs.

ESG Transparency Tools

 

ESG Transparency Tools


ESG Ratings Corporate Search Tool

ESG Ratings Corporate Search Tool

Explore the MSCI ESG Rating and ESG Key Issues of over 2,800 companies.

ESG Industry Materiality Map

ESG Industry Materiality Map

Explore E, S & G Key Issues by GICS® sub-industry or sector and their contribution to companies' ESG Ratings.

ESG Fund Ratings Search Tool

ESG Fund Ratings Search Tool

ESG Fund Ratings aim to measure the resilience of mutual funds and ETFs to long term risks and opportunities.

Index Profile Search Tool

Index Profile Search Tool

Explore ESG and climate metrics for all MSCI equity, fixed income and blended indexes regulated by the EU.

Explore our ESG & Climate Solutions

 

Explore our ESG & Climate Solutions


内嵌的应用

ESG Investing

ESG Investing

Better investments for a better world.







Explore More


Climate Solutions

Climate Solutions

MSCI offers a suite of tools to help institutional investors benchmark, measure and manage portfolio exposure to climate risk, identify low carbon investment opportunities, and support investors seeking to set a net-zero target.

Learn More


ESG Indexes

ESG Indexes

MSCI ESG Indexes are designed to represent the performance of the most common ESG investment approaches by including, re-weighting or excluding companies by leveraging ESG criteria.


Read More


ESG Investing contact us


If you would like to learn more about our ESG & Climate Solutions:

Contact Us



Related Content

ESG 101 footnotes

 

1Bank of America Merrill Lynch, ESG Matters – US. “10 reasons you should care about ESG” https://www.bofaml.com/content/dam/boamlimages/documents/articles/ID19_1119/esg_matters.pdf