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's Guide to ESG Investing for Investment Professionals
This guide takes fiduciary duty, externalities, disclosures, and other important issues into account.
There is no one exhaustive list of ESG examples. ESG examples 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 examples can often be measured (e.g., what the employee turnover for a company is), but it can be difficult to assign them a monetary value (e.g., what the cost of employee turnover for a company is).
Conservation of the natural world
- Climate change and carbon emissions
- Air and water pollution
- Energy efficiency
- Waste management
- Water scarcity
Consideration of people & relationships- Customer satisfaction
- Data protection and privacy
- Gender and diversity
- Employee engagement
- Community relations
- Human rights
- Labor standards
Standards for running a company- Board composition
- Audit committee structure
- Bribery and corruption
- Executive compensation
- Political contributions
- Whistleblower schemes
ESG versus SRI
ESG investing grew out of investment philosophies such as Socially Responsible Investing (SRI), but there are key differences. Earlier models typically use value judgments 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.
SRI uses exclusionary filters to keep companies out of portfolios that don't meet certain criteria, while ESG opts-in to companies that are making positive impacts in the three factor areas.
Why Is CFA Institute Focused on ESG?
CFA Institute to Develop an ESG Industry Standard
CFA Institute is exploring the development of an ESG investment product standard that would build a framework for investment managers to better communicate, and their clients to better understand, the nature and characteristics of ESG-centric funds and investment strategies.
We are pleased to announce that a working group, composed of 15 individuals who have industry-leading ESG expertise, was formed.
More from CFA Institute on ESG Investing
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.
ESG and Responsible Institutional Investing Around the World
This review of academic research on ESG investing focuses on the growing role of institutional investors, and highlights the importance of assessing portfolio risk exposure to climate change.
Handbook on Sustainable Investments
Stay informed about recent trends in ESG and sustainable investing with these practical examples for institutional asset owners.
ESG Integration Case Studies & the ESG Integration Framework
Read case studies focusing on integration in ESG fixed income, equities, and more.
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.
SRI Investing and Islamic Finance: Similarities and Differences
This report identifies the ESG and ethical considerations at the core of both SRI investing and Islamic finance by tracing the origins, historical connections, and the main concepts in both approaches.