Sustainable investing - ESG integration | Robeco Global (2024)

FAQs

How is sustainable investing different from ESG integration? ›

ESG integration is not a sustainable investment approach in itself, but instead is a component of many traditional investment strategies today. The term refers to the systematic assessment of financially material ESG factors that can affect a company's bottom line in the investment analysis and decision-making process.

Answer. The Volkswagen scandal underscored the importance of incorporating ESG factors into investment decisions, revealing potential regulatory, reputational, and financial risks associated with poor ESG practices.

– Integrating ESG factors into investment analysis and decision-making processes leads to better-informed investment decisions – As an 'early warning radar' for risks that are not yet reflected in asset values, its use improves risk/return ratios – Considering ESG factors therefore leads to more comprehensive ...

Sustainable investing is about making investment decisions based on environmental, social and governance (ESG) factors: Enviromental (E): How companies address climate change and the impact of their activities on the planet.

Whereas sustainability is an umbrella term that encompasses responsible environmental, social and governance considerations, ESG specifically refers to a subset of sustainability criteria within these three areas that are used to evaluate the performance and behaviour of companies.

Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty.

In September 2015, the EPA announced that Volkswagen had violated the Clean Air Act by installing unlawful software into their diesel vehicles. Regulators in multiple countries began to investigate the automaker, and its stock price fell in value by a third in the days immediately after the news.

How does the Volkswagen scandal highlight the need for integrating ESG factors into an investor's decision - making? Owners of Volkswagen vehicles were unable to sell them. Environmentally - conscious consumers lost faith in the Volkswagen brand and took their business elsewhere.

What is an example of ESG integration in investment decisions? To many investors and buy-side firms, ESG risk is investment risk. In that light, a common ESG integration example is firms that assess how climate change may threaten a company's returns in the near and short term.

What is one of the challenges in ESG integration? ›

Data quality and availability: One of the most significant challenges in the ESG landscape is the lack of standardised, reliable, and comparable ESG data across different companies and industries.

Sustainable business practices contribute to resource efficiency, reduced operational costs, and improved resilience to market fluctuations. By integrating ESG considerations, investors can align their portfolios with companies that are likely to create lasting value in a rapidly changing business environment.

The primary goal of ESG investing is to integrate environmental, social and governance factors into investment decisions to achieve long-term, sustainable returns while promoting positive social and environmental outcomes.

One of the main disadvantages of ESG criteria is that companies are not required to disclose all information related to their sustainability practices. This can make it difficult for investors to evaluate the sustainability and ethical impact of investments.

FAQs. What is ESG and why is it important? ESG stands for environmental, social, and governance, and is a set of criteria used to assess a company's sustainability and societal impact. ESG helps investors to identify companies that are more sustainable and better positioned for long-term success.

While both ESG and sustainability are concerned with environmental, social, and governance factors, ESG focuses on evaluating the performance of companies based on these factors, while sustainability is a broader principle that encompasses responsible and ethical business practices in a holistic manner.

ESG looks at the company's environmental, social, and governance practices alongside more traditional financial measures. Socially responsible investing involves choosing or disqualifying investments based on specific ethical criteria. Impact investing aims to help a business or organization produce a social benefit.

Unlike ESG ratings, the SDG score: (i) reflects investors' revealed sustainability preferences; (ii) aligns with the EU taxonomy regulation; and (iii) aids climate change mitigation. We conclude that, as a corporate sustainability rating, the SDG score has high, and ESG ratings low, construct validity.

What is ESG Investing? Unlike ethical investing, where you exclude companies associated with negative outcomes, in ESG investing, you choose to invest in companies with high environmental, social and governance scores regardless of whether these companies are associated with negative outcomes.