ESG Glossary

What does ESG mean and what do different ESG strategies entail?

Active ownership – Engaging with companies and voting to initiate changes in behaviour, and in company policies and practices.

ESG – A shortening of environmental, social, governance, the three central factors in measuring the sustainability and ethical impact of an investment.

ESG integration – Inclusion of ESG risks and opportunities in traditional financial analysis, and investment decisions. It is based on a systematic process derived from appropriate research sources.

Exclusion – A strategy that exclude companies, sectors or countries that don’t align with the values of investors. Exclusions may actually reduce the investor’s impact on companies due to loss of voting rights.

Impact investing – Targeting measurable and positive social and/or environmental impact.

MSCI – An investment research company that provides indices, portfolio risk and performance analytics as well as governance tools to institutional investors and funds.

Norms-based screening – Screening of investments according to their compliance with international standards and norms.

Positive screening – A strategy tilting portfolios towards companies outperforming peers in ESG measures (Best in class), or thematic investing in companies solving specific ESG challenges.

Responsible investing – Often synonymous with ESG investing. Means taking into account different kinds of social, environmental or governance factors in investments.

Socially responsible investing – Investment style that focuses on social issues, such as labour rights.

Sustainable investing – Investment style that takes into account environmental issues, such as global warming.

UNGC – The United Nations Global Compact is an initiative that encourages businesses to adopt sustainable and socially responsible policies, and to report on their implementation.

 

Also see the Field guide to ESG, on how to you navigate in the ocean of ESG themes and terminology.

There are confusions, there are uncertainties but ESG is the new reality. It would be great if the industry finds standardisation that takes into consideration all angles and viewpoints before making things mandatory.

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How to choose the right ESG strategy?

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