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Tips for investing in ESG in 2021 and beyond

ESGPic
Environmental, Social and Governance (ESG) investment has become an integral part of company development. We look at how to capitalise on investments in the field in the coming years

Responsible investment is an increasingly hot topic in 2021, with companies looking at ways they can better improve their office green credentials, offer their employees cleaner technology, while contributing to the wider community through sustainable policies and practices.

According to Brie Williams, Head of Practice Management, State Street Global Advisors, a key part of best practice Environmental, Social and Governance (ESG) is through “incorporating ESG factors in investment decisions and active ownership asset stewardship.” Below we look at some of the key practices and areas in this field.

KEY ESG AREAS TO CONSIDER

One of the difficulties first-time ESG investors tend to face, is trying to develop a policy which covers all three areas – environment, social and governance. Environmental factors can cover areas such as water usage (and its conservation), clean technology, and green buildings. Meanwhile, social factors can include anti-bias issues, avoidance of harmful products in the workplace (such as tobacco) and general labour relations. Governance however, tends to focus exclusively on corporate issues such as board diversity, anti-corruption policies.

Whereas ESG used to be a ‘box tick’ within a company’s portfolio, modern day investors need to view ESG as something that has a part to play in decision making at every level within a company.

Indeed as Brie WIlliams, Head of Practice Management at State Street Global Advisors says: “Trends bubbling under the surface for the last decade have come to a head, positioning ESG to transform from a check-the-box portfolio component to a significant component of a portfolio.”

HOW TO INCORPORATE ESG INTO COMPANY POLICY

Those looking to improve their ESG performance should integrate their traditional investment analysis and decision-making processes with ESG policy. It is only when it is part of the core structure – rather than a separate target – that it can become a fully functional part of any company practice. Moreover, it is important to have key ESG goals in place and a method of measuring performance and targets in this field. For example, introducing specific ESG themes such as human rights performance or climate and carbon targets.

Another key way to build ESG is through creating a screening policy for any companies that work with your business. For example, picking companies which perform well in terms of ESG, while excluding any that perform badly or do not meet the screening criteria.

A key mistake many businesses make is thinking that ESG is contradictory to performance in the market. As Suzanne Smetana, Head of ESG Investment Integration at State Street Global Advisors says: “Do your research, as there is growing, clear and compelling research suggesting a correlation between ESG and corporate financial performance.”

 

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