Why ESG Investing Makes Sense

Once considered a niche market for institutional clients with specialized investment needs, ESG investing has gone mainstream. It now spans multiple asset classes and is used by a diverse group of investors. The Forum for Sustainable and ESG Investment formally defines sustainable, and impact investing as a discipline that considers environmental, social, and corporate governance criteria to generate long-term competitive financial returns and positive societal impact.

Many different terms are used to describe this approach including social, sustainable, ethical, and impact investing. Though all of these terms have slightly different definitions, for our purposes, we will refer to it as ESG investing. The main focus is investing in companies that are deemed acceptable according to ESG standards and also have the ability to deliver strong financial performance.

ESG factors can be incorporated into investment strategies in different ways. Generally speaking, ESG investing refers to complementing traditional techniques of analyzing financial risk and return with qualitative and quantitative analyses of ESG policies, performance, practices and impacts. Every investment manager has their own definitions of environmental, social, and governance factors. Some managers look at different factors dependent upon the industry or region in which a company operates.

Some examples of environmental factors that managers may focus on include climate change, greenhouse gas emissions, resource depletion, waste and pollution. Social factors may refer to work environments, community impact, diversity, or health and safety concerns. Governance factors typically include board structure, executive pay and legal issues. ESG investing may also include more specialized strategies that focus on a single issue, such as fossil-fuel-free mandates.

As the market for ESG investing has grown, so has the number of strategies offered by investment firms. With so many options available and so many different techniques utilized, it can be overwhelming for investors to choose the right managers for their ESG investments. Oppenheimer Asset Management uses its thorough due diligence process to evaluate managers of ESG investment strategies in order to ensure that the management team has the ability to add value on the investment side while also possessing the skills and knowledge necessary to identify potential ESG risks.