What is the best way to integrate ESG factors into financial decisions?
The Principles for Responsible Investment try to answer this question for a wide range of investment styles and strategies in their updated Practical Guide to ESG Integration for Equity Investing, with an emphasis on the key role of stewardship.
Among the guidelines, tools, materials and data sources they provide:
- Client demand, regulation, sustainability outcomes, and materiality are seen as the principal drivers of increasing integration of ESG factors investment among PRI signatories.
- All parts of the identified investment cycle can be upgraded with ESG: investment policy and beliefs, governance, investment process, stewardship, and monitoring and reporting.
- Sustainability considerations can be incorporated in any investment strategy, be it active fundamental, active quantitative or passive.
- To better manage risks and improve returns, stewardship activities can be developed to influence not only investee companies, but also other stakeholders.
- Should differences in strategy arise with investee firms, passive investors may consider different levers to achieve their stewardship objectives, such as engaging policymakers.
Even though it boasts 5,319 signatories representing US$121 trillion in AuM, the PRI initiative still needs to foster the general knowledge and pressure from beneficiaries, regulators and society as a whole to push for greater integration of these ESG guidelines.