Definition of ESG versus Investment Strategies

Responsible investment is not a trade-off between Values and Valuation.

A lot of misunderstanding about ESG comes from the lack of understanding of the nuances between various responsible investment strategies.

Different investors have different motivations for considering ESG factors, and there are numerous ways to incorporate ESG issues into investment decisions.

Michelle de Cordova and Blythe Clark from ESG Global Advisors Inc. offer a perspective on the various existing approaches to responsible investment and what they mean in practical terms.

They come up with a 5-step approach for investors to position themselves on this spectrum and establish a reliable responsible investment strategy:

• Building capacity: make sure that important decision-makers and stakeholders share a common knowledge of prospective RI approaches.
• Strategic positioning: reach an agreement on the investor's level of RI ambition, understand the RI landscape for the investor's type, and position the investor within the landscape.
• Policy: Create a RI policy that is appropriate for the type and level of ambition of the investor.
• Implementation: Establish RI frameworks and procedures to enable efficient policy implementation.
• Reporting: Track RI implementation's progress in accordance with pre-established disclosure frameworks by using the proper metrics and targets.

Most portfolios already work under constraints from their financial strategy, and thematic ESG approaches should not be considered any differently in terms of their financial duty implications.