ESG or Environmental, Social and Corporate Governance, describes the three main areas of concern that have developed as the central factors in measuring the sustainability and ethical impact of an investment in a company of business.
Within these three areas are a broad set of concerns that are increasingly being included in the non financial factors that figure in the valuation of equity, real-estate, corporations and all fixed-income investments. ESG is the catch-all term for the criteria used in what has become known as Socially Responsible Investment.
There is growing evidence that suggests that ESG factors, when integrated into investment analysis and decision making, may offer investors potential long-term performance advantages. ESG has become shorthand for investment methodologies that embrace ESG or sustainability factors as a means of helping to identify companies with superior business models.
The European Federation of Financial Analysts Societies (EFFAS) has defined topical areas for reporting of ESG issues, and developed Key Performance Indicators (KPIs) for use in financial analysis of corporate performance. EFFAS has identified nine topical areas that apply to all sectors and industries:
ESG analysis can provide insight into the long-term prospects of companies which allows mispricing opportunities to be identified. Company specific ESG factors offer a benchmark for investors to judge the overall quality of the board's governance and risk management processes and their positioning within an industry sector. The UN-backed Principles of Responsible Investment (PRI) provides a voluntary ESG framework for companies and funds, from which investors can make informed investment decisions that relate to sustainability and governance practices.
BIBLIOGRAPHY
1. Valuing non-financial performance: A European framework for company and investor dialogue: http://investorvalue.org/
2. Financial Times Lexicon; Term: ESG [Financial Times]
3. ESG Managers Portfolios "What is ESG?" [ESG Managers]
4. Burstein, Katherine "Why consider ESG factors? The Case for ESG integration" [Mercer; 14 Jul 2009]
Within these three areas are a broad set of concerns that are increasingly being included in the non financial factors that figure in the valuation of equity, real-estate, corporations and all fixed-income investments. ESG is the catch-all term for the criteria used in what has become known as Socially Responsible Investment.
There is growing evidence that suggests that ESG factors, when integrated into investment analysis and decision making, may offer investors potential long-term performance advantages. ESG has become shorthand for investment methodologies that embrace ESG or sustainability factors as a means of helping to identify companies with superior business models.
The European Federation of Financial Analysts Societies (EFFAS) has defined topical areas for reporting of ESG issues, and developed Key Performance Indicators (KPIs) for use in financial analysis of corporate performance. EFFAS has identified nine topical areas that apply to all sectors and industries:
- Energy efficiency
- Greenhouse gas (GHG) emissions
- Staff turnover
- Training and qualification
- Maturity of Workforce
- Absenteeism rate
- Litigation risks
- Corruption
- Revenues from new products
ESG analysis can provide insight into the long-term prospects of companies which allows mispricing opportunities to be identified. Company specific ESG factors offer a benchmark for investors to judge the overall quality of the board's governance and risk management processes and their positioning within an industry sector. The UN-backed Principles of Responsible Investment (PRI) provides a voluntary ESG framework for companies and funds, from which investors can make informed investment decisions that relate to sustainability and governance practices.
BIBLIOGRAPHY
1. Valuing non-financial performance: A European framework for company and investor dialogue: http://investorvalue.org/
2. Financial Times Lexicon; Term: ESG [Financial Times]
3. ESG Managers Portfolios "What is ESG?" [ESG Managers]
4. Burstein, Katherine "Why consider ESG factors? The Case for ESG integration" [Mercer; 14 Jul 2009]
