Topic: ESG investing (2024)

Raising awareness to environmental, social, and governance (ESG) issues and targeting goals beyond maximizing profits and minimizing risks is a growing trend around the world, also within investing, which has generated large inflows of assets into ESG funds in recent years. Applying non-financial factors into the investment process is a response to global challenges such as climate change and inequalities, with the aim to have a positive impact on society - although environmental factors are the main focus for most ESG investments. It is more and more becoming the standard in the investment industry, especially in Europe, where most of the sustainable fund’s assets are concentrated. The most common approach to investing sustainably is through ESG integration - by explicitly and systematically factoring ESG issues into the investment decision. This approach is creating impact by forcing companies to report how they are dealing with important environmental, social, and governance topics.

What is driving the growth of ESG investments?

The growth of sustainable investments is driven by several factors: from the politicization of ESG, impact on risk and return, from investor demand, to influence corporate behavior, and keeping a good brand and reputation, just to name a few. Although some investors still believe that it might have a negative impact on risk and return, meaning they believe that the ESG portfolios will underperform compared to non-ESG portfolios, and they do not want to sacrifice investment performance. This unwillingness to accept lower return or increasing risk used to be the main barrier to wider adoption of ESG investing, but it is, however, becoming more acknowledged around the world that investments in sustainable securities such as funds can perform even better, or at least as well as non-ESG portfolios, and can help mitigate risk. The main reason keeping investors and firms from engaging with ESG today is due to factors, such as lack of knowledge, lack of comparability of ESG data across issuers, or regulatory or legal constraints.

How is ESG performance measured?

ESG impact is still hard to measure, despite around one third of invested assets being defined as sustainable, and despite the growing awareness to the topic. There are several score systems in use to measure the risks and effects of investments, such as the most widely used Sustainalytics, MSCI ESG ratings, and S&P Global (RobecoSAM), but there are also other third-party ratings or awards. These scores, or ratings, are the most common tools used by both institutional investors and fund selectors to help measuring the impact. They do, however, show significant divergence in many cases, even when being standardized and measuring the impact of one and the same company. There are also several different sustainability reporting frameworks to help enterprises communicate their impacts, although there are large differences between stock exchanges in which of these frameworks are being referenced. This divergence in ESG reporting prove that measuring ESG impact is hard, but not impossible, and many investors are calling for a more standardized reporting framework and regulation around the topic.

This text provides general information. Statista assumes no liability for the information given being complete or correct. Due to varying update cycles, statistics can display more up-to-date data than referenced in the text.

Published by Statista Research Department, Mar 8, 2024

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ESG policies

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Targets and drivers

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Topic: ESG investing (2024)

FAQs

Topic: ESG investing? ›

ESG investing focuses on companies that follow positive environmental, social, and governance principles. Investors are increasingly eager to align their portfolios with ESG-related companies and fund providers, making it an area of growth with positive effects on society and the environment. S&P Global.

What is an ESG topic? ›

ESG stands for environmental, social and governance. These are called pillars in ESG frameworks and represent the 3 main topic areas that companies are expected to report in.

What is an example of ESG Investing? ›

An example of an ESG investment would be a company that focuses on generating renewable energy. For a company to truly be an ESG investment, it would also need to rank high in social responsibility as well as governance structure.

What is ESG Investing discussion? ›

ESG investing looks at how well a company performs in areas like the environment, social issues, and governance issues.

What does ESG Investing primarily focus on? ›

ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities.

Why is ESG a hot topic? ›

This growth is due to several factors, including: Increased awareness of sustainability and social responsibility issues. Institutional investors' demand for ESG products. Regulatory changes in some countries have made it easier for investors to integrate ESG factors into their investment decisions.

What are the four pillars of ESG? ›

  • Answer: - The answer is written below.
  • Detailed answer: -
  • Quess, a company focusing on Environmental, Social, and Governance (ESG) practices, has four main pillars in its ESG framework:
  • Environment:
  • Social:
  • Governance:
  • Compliance and Ethics:
Jan 15, 2024

What is ESG for dummies? ›

What is ESG explained in simple terms? ESG stands for Environmental, Social, and Governance. It is a framework used to evaluate a company's sustainability and ethical impact.

What is ESG in simple words? ›

ESG means using Environmental, Social and Governance factors to assess the sustainability of companies and countries. These three factors are seen as best embodying the three major challenges facing corporations and wider society, now encompassing climate change, human rights and adherence to laws.

What is an example of ESG in real life? ›

Ford: “Sustainability Report” by Ford outlines its “Ford+ Plan” for sustainable growth. This one stands out for its focus on environmental justice. This example of ESG report addresses the impact of its operations on communities aligning more towards the social disclosures.

Who is behind ESG? ›

The term ESG first came to prominence in a 2004 report titled "Who Cares Wins", which was a joint initiative of financial institutions at the invitation of the United Nations (UN).

What are the disadvantages of ESG Investing? ›

However, there are also some cons to ESG investing. First, ESG funds may carry higher-than-average expense ratios. This is because ESG investing requires more research and due diligence, which can be costly. Second, ESG investing can be subjective.

What are ESG risks? ›

What are ESG Risks? ESG Risks are those arising from Environmental, Social and Governance factors that a company must address and manage. These risks are a combination of threats and opportunities that can have a significant impact on an organisation's reputation and financial performance.

Why is everyone investing in ESG? ›

Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty. Companies that realign to the stakeholder capitalism agenda may have a competitive advantage over those that try to return to business as usual.

Where does ESG money come from? ›

IS IT JUST MILLENNIALS DOING IT? No, the vast majority of money in ESG investments comes from huge investors like pension funds, insurance companies, endowments at universities and foundations and other big institutional investors.

What is the most common approach for ESG investing? ›

1. Negative Screening. Negative screening is the most well-known and perhaps the most common ESG strategy.

What are the topics of ESG reporting? ›

ESG reporting is all about disclosing information covering an organisation's operations and risks in three areas: environmental stewardship, social responsibility, and corporate governance. Consumers look to ESG reports to find out if they are supporting a company whose values align with theirs.

What are the three areas of ESG? ›

It measures how your business integrates environmental, social, and governance practices into operations, as well as your business model, its impact, and its sustainability. The three components that make up ESG are environmental, social and governance.

What are the three pillars of ESG? ›

The three pillars of ESG are:
  • Environmental – this has to do with an organisation's impact on the planet.
  • Social – this has to do with the impact an organisation has on people, including staff and customers and the community.
  • Governance – this has to do with how an organisation is governed. Is it governed transparently?

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