What Is ESG Investing?
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. ESG metrics are not commonly part of mandatory financial reporting, though companies are increasingly making disclosures in their annual report or in a standalone sustainability report. Numerous institutions, such as the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) are working to form standards and define materiality to facilitate incorporation of these factors into the investment process.
This guide takes fiduciary duty, externalities, disclosures, and other important ESG issues into account.
ESG Investing Trends
As ESG investing accelerates in demand, several key trends are emerging – from climate change to social unrest. The coronavirus pandemic, in particular, has intensified discussions about the interconnectedness of sustainability and the financial system. CFA Institute is leading the financial industry by producing valuable research, convening experts and practitioners for discussion, and setting standards to enable the mainstreaming of ESG investing.
2020 Mercer CFA Institute Global Pension Index
Now in its 12th year, the Mercer CFA Institute Global Pension Index benchmarks 39 retirement income systems using more than 50 indicators.
Climate Change in the Investment Process
Explore climate change’s impact on investing, key tools for investment professionals, and case studies.
Inclusion & Diversity in Finance
Take action to create new capabilities and a more diverse workforce and inclusive workplace cultures.
There is no one exhaustive list of ESG examples. ESG factors are often interlinked, and it can be challenging to classify an ESG issue as only an environmental, social, or governance issue, as the table below shows.
These ESG factors can often be measured (e.g., what the employee turnover for a company is), but it can be difficult to assign them a monetary value (e.g., what the cost of employee turnover for a company is).
Conservation of the natural world
- Climate change and carbon emissions
- Air and water pollution
- Energy efficiency
- Waste management
- Water scarcity
Consideration of people & relationships- Customer satisfaction
- Data protection and privacy
- Gender and diversity
- Employee engagement
- Community relations
- Human rights
- Labor standards
Standards for running a company- Board composition
- Audit committee structure
- Bribery and corruption
- Executive compensation
- Political contributions
- Whistleblower schemes
There is not a standardized approach to the calculation or presentation of different ESG metrics. Investors can employ a variety of analytical approaches and data sources to address ESG considerations, including weighting to client interest and potential value. Understanding the relative merits and limitations of different metrics can help to form a more complete picture of ESG risks and opportunities.
ESG Integration Case Studies & the ESG Integration Framework
Read case studies focusing on integration in ESG fixed income, equities, and more.
ESG versus SRI
ESG investing grew out of investment philosophies such as Socially Responsible Investing (SRI), but there are key differences. Earlier models typically use value judgments and negative screening to decide which companies to invest in. ESG investing and analysis, on the other hand, looks at finding value in companies—not just at supporting a set of values.
SRI Investing and Islamic Finance: Similarities and Differences
This report identifies the ESG and ethical considerations at the core of both SRI investing and Islamic finance by tracing the origins, historical connections, and the main concepts in both approaches.
CFA Institute is developing ESG Disclosure Standards for Investment Products that aim to build a framework for investment managers to better communicate, and their clients to better understand, the nature and characteristics of ESG-centric funds and investment strategies.
Regional ESG Insights from CFA Institute
ESG and Responsible Institutional Investing Around the World
This review of academic research on ESG investing focuses on the growing role of institutional investors, and highlights the importance of assessing portfolio risk exposure to climate change.
ESG Integration and Analysis Integration in the Americas: Markets, Practices, and Data
This report outlines ESG integration best practices in the Americas markets.
ESG Integration and Analysis in Asia Pacific: Markets, Practices, and Data
Understand key ESG trends, drivers, and factors in ESG integration across APAC markets and investment practices.
ESG Integration and Analysis in Europe, the Middle East, and Africa: Markets, Practices, and Data
This report outlines ESG integration best practices in EMEA markets.