Environmental, Social and Governance (ESG) factors are the three pillars of sustainable investing. As such, fund managers will typically consider the following within these three areas when analysing investment opportunities:
- Environmental issues – how a company is addressing issues such as climate change, resource depletion, waste, pollution and deforestation
- Social issues – a company’s policies and record in relation to human rights, modern slavery, child labour, working conditions and employee relations
- Governance issues – a company’s record in relation to bribery and corruption, executive pay, board diversity and structure, political lobbying/donations and tax strategy.
A potential issue for investors is that sustainable funds adopt different policies and investment approaches. SRI Services, an independent and specialist business with over three decades of experience in sustainable investment, has developed a set of ‘SRI Styles’ in order to make comparisons easier: