ESG INVESTMENT

INTEGRATING ESG INTO VALUATION MODELS AND INVESTMENT DECISIONS

THE VALUE DRIVER
ADJUSTMENT APPROACH

Integrating ESG Factors in the Investment Process. This trend is likely to continue in the coming years because ESG integration in the mainstream investment process provides a clear opportunity to optimize the risk–return characteristics of your portfolio. From a practitioner’s perspective, one of the key challenges is how to integrate these factors in a company’s valuation, an interesting area that is still in development. Today, investors are still using several different ways of applying ESG factors in company valuations.

  • ESG’s Role
  • ESG Reporting Quality Review
  • ESG Issues in Investment
  • Sustainability Index

ESG has become one of the key directions for future investment analysis. Consideration of ESG factors are perceived as part of investment risk management. We can also see increasing demand from investors to pay attention to ESG related factors.

  • To Help Manage investment risks
  • Clients/investors demand it
  • ESG performance is a proxy for management quality
  • It’s my fiduciary duty
  • To help identify investment opportunities
    *a survey conducted by CFA Institute in 2015

Even though ESG investment and ESG Integration has become a hot topic for discussion, asset managers are concerned about a lack of robust data could act as a barrier to greater adoption of ESG today. A lack of advanced analytics is also a significant concern for expansion of ESG Integration. Investment in ESG technology and specialist will be vital to ESG Investment.

Relevant ESG Factors for Investment Decision Making

ENVIRONMENTAL ISSUES

  • Climate change and carbon emissions

  • Air and water pollution

  • Biodiversity
  • Deforestation
  • Energy efficiency
  • Waste management
  • Water scarcity

SOCIAL ISSUES

  • Customer satisfaction

  • Data protection and privacy
  • Gender and diversity
  • Employee engagement
  • Community relations
  • Human rights
  • Labor standards

GOVERNANCE ISSUES

  • Board composition
  • Audit committee structure
  • Bribery and corruption
  • Executive compensation
  • Lobbying
  • Political contributions
  • Whistleblower schemes

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