The Three Factors
Climate impact, carbon emissions, resource use, pollution, waste management.
Labour practices, diversity, human rights, community relations, product safety.
Board composition, executive pay, shareholder rights, audit quality, ethics.
How ESG Is Used in Fund Management
- ▸ ESG integration: incorporating ESG data into investment analysis alongside financial factors.
- ▸ Negative screening: excluding companies or sectors based on ESG criteria.
- ▸ Positive screening: selecting companies with strong ESG performance.
- ▸ Thematic ESG: investing in sustainability-themed opportunities.
- ▸ Impact investing: investing with the intention to generate measurable ESG outcomes.
Why ESG Marketing Presents Disclosure Risks
When a fund manager says it "integrates ESG" or that ESG is "embedded" in its process, investors may rely on that representation. If the actual practice does not match the representation, the communication may be misleading. This is the core of the disclosure risk that the Purpose Investments case illustrates.
ESG vs Impact vs Ethical Investing
ESG investing is not the same as impact investing (which targets specific outcomes) or ethical investing (which reflects moral values). ESG is an analytical approach that considers environmental, social and governance factors as part of the investment process. The distinction matters because each label carries different investor expectations.