ESG Investing and Analysis
What Is ESG Investing?
ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. ESG metrics are not commonly part of mandatory financial reporting, though companies are increasingly making disclosures in their annual report or in a standalone sustainability report. Numerous institutions, such as the Sustainable Accounting Standards Board (SASB), the Global Reporting Initiative (GRI) and CDP are working to form standards and define materiality to facilitate incorporation of these factors into the investment process.
CFA Institute Guide to ESG Investing for Investment Professionals
Environmental, Social, and Governance Issues in Investing
This guide to ESG investing takes fiduciary duty, externalities, disclosure, and other important ESG issues into account.
There is no one exhaustive list of ESG issues. ESG issues are often interlinked, and it can be challenging to classify an ESG issue as only an environmental, social, or governance issue, as the table below shows.
These ESG issues can often be measured (e.g., what is the employee turnover for a company?), but it can be difficult to assign them a monetary value (e.g., what is the cost of employee turnover for a company?).
Examples of ESG Issues
ESG vs. SRI
ESG investing grew out of investment philosophies such as Socially Responsible Investing (SRI), but there are key differences. Earlier models typically use value judgements and negative screening to decide which companies to invest in. ESG investing and analysis, on the other hand, looks at finding value in companies—not simply at supporting a set of values.
Why Is CFA Institute Focused on ESG?
CFA Institute consistently monitors key debates and evolving issues in the investment industry. ESG investing and analysis has become of increasing interest to investment professionals globally as governments, asset owners, and high-net worth investors consider the impact of ESG factors on their investments and local markets. We believe more thorough consideration of ESG factors by financial professionals can improve the fundamental analysis they undertake and ultimately the investment choices they make. CFA Institute is specifically focused on the quality and comparability of the ESG information provided by corporate issuers and how to integrate various ESG factors into the investment selection process.
More from CFA Institute on ESG Investing
ESG Investing Course & SRI Education
Start your ESG education with this introductory SRI and ESG investing course.
Handbook on Sustainable Investments
Stay informed about recent trends in ESG and sustainable investing with these practical examples for institutional asset owners.
Corporate Governance and ESG: CFA Program Refresher Reading
Exclusive to CFA Institute members, this CFA Program refresher reading gives an overview of ESG and corporate governance, its underlying principles and theories, and how these factors influence the investment decision-making process.
ESG Integration and Analysis in Europe, the Middle East, and Africa: Markets, Practices, and Data
This report outlines ESG integration best practices in EMEA markets.
ESG Integration and Analysis Integration in the Americas: Markets, Practices, and Data
This report outlines ESG integration best practices in the Americas markets.
ESG Integration and Analysis in Asia Pacific: Markets, Practices, and Data
Understand key ESG trends, drivers, and factors in ESG integration across APAC markets and investment practices.
ESG Integration Case Studies & the ESG Integration Framework
These case studies focus on integration in ESG fixed income, equities, and more.
ESG Disclosures in Asia Pacific
This report provides an overview of recent trends in ESG disclosures in seven Asia-Pacific markets: Australia, China, Hong Kong SAR, India, Japan, Singapore, and Thailand.
ESG and Sustainability Reporting & Regulations
Learn more about how global ESG regulations and sustainability reporting have evolved, and how CFA Institute has responded to these changes.