The world is changing, and so are the expectations of investors. The emergence of ESG (environmental, social, and governance) investing has also led to the creation of impact investing, which further includes sustainable, impact, and venture capital.
These factors have changed investors’ focus from just financial returns to the incorporation of wider risk assessment and management practices. Moreover, it has also become a mandatory requirement for investment managers to demonstrate how investments meet standards for environmental, social, and governance risks as well as policies on these issues.
Here is an in-depth look at how you can incorporate ESG integration and your portfolio to create a more sustainable future.
What Is ESG Integration?
As pointed out, ESG stands for environmental, social, and governance factors. ESG integration is the process of integrating ESG factors in the investment decision-making process. It aims to identify and avoid negative environmental and social consequences of companies’ activities as well as risks associated with the management of companies.
ESG integration is significant because it helps investors take into account factors that are beyond the company’s financial performance. Besides, it has also become mandatory for investment managers to demonstrate how investments meet standards for environmental, social, and governance risks as well as policies on these issues.
These factors have changed investors’ focus from just financial returns to the incorporation of wider risk assessment and management practices.
How To Incorporate ESG Into Your Portfolio?
There are 3 key ways to incorporate ESG into your portfolio.
The first way is to consider the wider impact of your investment decisions. When making investment decisions, consider the wider impact of these decisions on the world. You can do this by including ESG considerations in your decision-making process or by selecting an investment manager that integrates different factors into the investment process.
As you consider the impact of where you decide to put your money, consider the risks as well. Conduct ESG research to make yourself aware of the risks associated with the investment.
The second way is to select investment managers integrating different factors into the investment process. ESG integration is a process that takes into account a company’s environmental, social, and governance factors.
You can select investment managers that incorporate ESG integration into their investment process. This includes selecting investment managers that have a policy on ESG integration or a dedicated team responsible for this process.
The global market is moving towards sustainability, and investable solutions and investors are demanding more from their portfolio managers when it comes to ESG integration.
ESG integration is no longer an option; it’s a requirement. This leaves portfolio managers asking the question of how they can incorporate ESG into their portfolio.
Some investors and analysts view integrating ESG as a checkbox, while others see it as a way to capture value and add value at the same time. Whatever the case,it’s important for investors to monitor where they’re placing their money.