ESG Investing

The growth of sustainable, or ESG investing, over the past few years has been rapid with Bloomberg Intelligence estimating that ESG assets may hit $53 trillion by 2025, a third of global AUM.¹

With environmental challenges dominating media coverage, and the COVID-19 pandemic highlighting many social inequities, investors are increasingly asking advisers how they can invest responsibly.

Some question whether ESG is another bubble waiting to happen,
but what is beyond doubt is that the growth is driven by investor demand.

In a recent ebi webinar Georg Kell, the Founding Executive Director of the UN Global Compact, commented that as a trend, ESG is “transformative and irreversible.”²


Jargon Buster

ESG stands for Environmental Social and Governance, and refers to the three key factors when measuring the sustainability impact of an investment in a business or company. ESG criteria are used to screen investments for inclusion or exclusion within a portoflio.3 

Infographic Download
‘ESG Data – See The Big Picture’

ESG data is extra financial criteria that helps provide a more rounded picture of the long term resilience of companies.

ESG and Performance

This quintiles analysis examines the relationship between financial performance and ESG scores by dividing the S-Ray universe of stocks into quintiles by ESG score. Quintile 1 is the best 20% and quintile 5 shows the worst 20%.

Source: Arabesque S-Ray ESG Quintiles Analysis as of 30.11.2021.

Greenwashing

Greenwashing

Another investor concern is ‘greenwashing’, where companies convey a false, or exaggerated impression of their sustainability credentials.

Also known as ‘greensheening’, greenwashing is a cynical ploy some companies use to jump on the ESG bandwagon, taking advantage of the lack of clear definition of what sustainability or green actually means.

A good example of greenwashing is when a plastic bottle is labelled 100% recyclable. This doesn’t mean it will be, or even likely to be recycled, which is misleading to the consumer.

How is it being tackled?

The answer is simply look at the evidence;

  • Does the company in question back up their claims with data?

  • Have they institutionalised sustainability within the company?

  • Do they have a board or committee that monitor and report on green issues?

  • Additionally looking at targets the company sets for itself can tell a story. Are they achieving their targets easily, or finding it difficult to meet them?


The stewardship efforts of fund managers helps to push back those companies that over overstating their ‘green’ credentials.

Our webinar with Julia Kochetygova, Head of EMA Stewardship for Northern Trust, ‘How Fund Managers influence companies for sustainability’ discuses sustainable investing, stewardship, and how fund managers influence positive change within companies.

The 3 pillars of ESG

Environmental, Social and Governance (ESG) is a responsible investment strategy that seeks both financial return and positive change.

The three pillars of ESG investing combine to define what most people would categorise as good business practice. Environmental issues cover how companies interact with the environment, Social issues cover companies’ conduct towards their internal and external communities, and Governance issues cover how companies behave in their business activities.

Environmental

• Air & Water Pollution
• Biodiversity & Deforestation
• Climate Change
• Energy Efficiency
• Waste Management
• Water Scarcity

Producing more output with less natural resources, energy, water, waste and pollution.

Social

• Community Relations
• Customer Satisfaction
• Employee Engagement
• Gender & Diversity
• Human Rights
• Labour Standards

Improving relations with key stakeholders: employees, customers, suppliers.

Governance

• Audit Committee Structure
• Board Composition
• Bribery & Corruption
• Executive Compensation
• Lobbying Activities
• Political Contributions

Reducing risk through board oversight and risk controls.

ESG investing approaches

There are several approaches to ESG investing, each with its own benefits and challenges. These include ESG Integration, Impact investing, Exclusion based investing and Inclusion based investing. Find out more by clicking below.


ebi’s ESG investment solution

At ebi, we believe that sustainable investing is the future.

Through our diverse range of sustainable investment solutions, we incorporate Environmental, Social and Governance (ESG) concerns into our investment decisions with the goal of improving the world.

Introducing our Earth Portfolios

ebi offer a five factor, passively managed portfolio, with 100% of the equity funds ESG screened.

ebi negotiated with best of breed managers to launch funds that address our core factor based investment strategy, possess strong ESG and sustainability credentials, and allow us to leverage our scale to provide prices that represent a compelling investment solution for investors.

ebi use screened funds within Earth to control certain exposures based on criteria such as:

  • business sectors
  • vice products or controversial weapons manufacture
  • companies that participate in environmentally damaging activities.


ebi recognise the influence the finance sector has on companies and their sustainability credentials, and believes that the stewardship of investment managers will help drive long term sustainability change.


Emissions Calculator

Try our emissions calculator, a valuable tool in demonstrating the benefits of sustainable investing to clients.

Enter your investment amount, choose the ebi Earth portfolio and the comparison portfolio, and find out the annual carbon savings in metric tonnes.

The calculator also provides equivalent examples, such as the comparable number of miles driven in an average car, or how many viewings of the ‘Friends’ complete series boxset!


Learn more about ESG

If you would like a better understanding of ESG investing, how it differs from SRI investing for example, or would like some tips on how to talk about ESG with clients then book one of our regular Sam Adams webinars.

• Understanding a framework for sustainable investing.
• Creating your sustainability story and philosophy.
• Understanding your client motivations.
• Best practices for speaking on sustainability.

Sam Adams is a Non-Executive Director at ebi with extensive expertise in ESG investing. When not working with ebi, he’s running his own ESG asset management firm in California.


Catch up on our ESG-focussed webinars

Watch our ESG webinars, with thought leaders from across the investment world giving us their unique insight into sustainable investing.


ESG Blogs

Would you like the ebi perspective on whether ESG is another bubble waiting to happen or whether passive ESG funds drive positive change?

Check out our blogs which tackle important ESG investment questions and provide comment from key ESG industry figures.



Download Earth Portfolios Brochure

¹ Bloomberg Intelligence, 21 February 2021 [online]
² ebi webinar, Georg Kell,  Decarbonisation, Digitalization and Sustainability’, 2021 [online]
³ Market Business News, ESG definition [online]