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ESG Investing and Analysis

CFA Institute has been driving the consideration of environmental, social, and governance (ESG) factors in financial analysis. ESG analysis has become an increasingly important part of the investment process. Investors are incorporating ESG data into the investment process to gain a fuller understanding of the companies in which they invest.

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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 Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) are working to form standards and define materiality to facilitate incorporation of these factors into the investment process.

ESG Investing Trends

As ESG investing accelerates in demand, several key trends are emerging – from climate change to social unrest. The coronavirus pandemic, in particular, has intensified discussions about the interconnectedness of sustainability and the financial system. CFA Institute is leading the financial industry by producing valuable research, convening experts and practitioners for discussion, and setting standards to enable the mainstreaming of ESG investing.

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Sustainable Investing and Investment Management

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Climate Change in the Investment Process

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Inclusion & Diversity in Finance

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ESG Factors

There is no one exhaustive list of ESG examples. ESG factors 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 factors 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).

  • Environmental

    Conservation of the natural world

    - Climate change and carbon emissions
    - Air and water pollution
    - Biodiversity
    - Deforestation
    - Energy efficiency
    - Waste management
    - Water scarcity

  • Social

    Consideration of people & relationships

    - Customer satisfaction
    - Data protection and privacy
    - Gender and diversity
    - Employee engagement
    - Community relations
    - Human rights
    - Labor standards
  • Governance

    Standards for running a company

    - Board composition
    - Audit committee structure
    - Bribery and corruption
    - Executive compensation
    - Lobbying
    - Political contributions
    - Whistleblower schemes

ESG Metrics

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There is not a standardized approach to the calculation or presentation of different ESG metrics. Investors can employ a variety of analytical approaches and data sources to address ESG considerations, including weighting to client interest and potential value. Understanding the relative merits and limitations of different metrics can help to form a more complete picture of ESG risks and opportunities.

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 just 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.

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    Skills & Expertise for a Career in ESG Investing

    Understand how firms and investment management professionals can demonstrate commitment to ESG research, ensure ESG expertise, and grow in staffing and career paths to support ESG investing.

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    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.

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    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.

CFA Institute Develops Global ESG Disclosure Standards for Investment Products

CFA Institute has develope the Global ESG Disclosure Standards for Investment Products which aims to 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.

Learn more about the CFA Institute Global ESG Disclosure Standards for Investment Products

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Regional ESG Insights from CFA Institute

Discover all ESG investing resources