What is ESG Investing?

What is ESG Investing?

Arun Kelshiker

20 years: Asset management and stewardship

In this video, Arun covers the origins of ESG investing and the different types of responsible investing, which balances financial returns with environmental and social impacts. He discusses how ESG investing has evolved since the 18th century and how it gained prominence post-2008 financial crisis. He also explores seven different approaches to responsible investing, including ESG integration, corporate engagement, norms-based screening, negative and positive screening, thematic investing, and impact investing.

In this video, Arun covers the origins of ESG investing and the different types of responsible investing, which balances financial returns with environmental and social impacts. He discusses how ESG investing has evolved since the 18th century and how it gained prominence post-2008 financial crisis. He also explores seven different approaches to responsible investing, including ESG integration, corporate engagement, norms-based screening, negative and positive screening, thematic investing, and impact investing.

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What is ESG Investing?

8 mins 4 secs

Overview

In a landmark 2015 speech, former Bank of England Governor Mark Carney highlighted the importance of ESG investing for financial stability amid climate change. ESG investing incorporates environmental, social, and governance factors in investment decision-making. Originating in the 18th century, ESG has gained mainstream attention due to regulatory drivers and initiatives like TCFD and the EU's Green Deal. Strategies include responsible, sustainable, and impact investing. Approaches involve ESG integration, corporate engagement, norms-based screening, negative and positive screening, thematic investing, and impact investing. As ESG investing gains momentum, investors must balance financial returns with environmental and social impacts.

Key learning objectives:

  • Outline the origins of ESG investing

  • Understand what responsible investing is and the different types

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Summary

How and when did ESG originate?

ESG investing, which incorporates environmental, social, and governance factors into investment decisions, has origins dating back to the 18th century when Quakers, Methodists and other faith groups laid out clear principles-led guidance as to which companies their followers should invest into. The practice gained momentum in the early 21st century with the 2005 "Who Cares Wins" and "Freshfields Report," leading to the launch of the Principles for Responsible Investment (PRI) in 2006. 

Post-2008 Global Financial Crisis, ESG investing rose to prominence due to regulatory drivers like the Task Force on Climate-Related Financial Disclosures (TCFD) and the EU's Green Deal. TCFD has now become mandatory and enshrined in law across a growing number of countries including the UK and is a universally accepted framework for companies and investors to disclose their climate strategy and metrics. 

What is responsible investing and what are the different types?

Responsible investing balances financial returns with environmental and social impacts. 

Strategies include responsible investing (mitigating ESG risks), sustainable investing (pursuing ESG opportunities), and impact investing (focusing on high-impact solutions). 

The Global Sustainable Investment Alliance outlines seven approaches: ESG integration, corporate engagement & shareholder action, norms-based screening, negative screening, positive screening, thematic investing, and impact investing. These strategies emphasise the importance of incorporating ethical considerations, ESG performance, and sustainable solutions in investment decision-making.

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Arun Kelshiker

Arun Kelshiker

Arun Kelshiker was formerly the Head of Asset Allocation and Portfolio Strategy at Standard Chartered Bank and part of the bank's Global Investment Committee, where he provided investment advisory and multi-asset portfolio solutions. His focus is now with Cambridge Sustainable Investment Partners, which draws its expertise from the Resilience and Sustainable Development Centre at Cambridge University. He is also a university lecturer at the Frankfurt School of Finance and Management and is Vice Chair of the CFA UK's Inclusion and Diversity Committee and its Investment Committee.

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