The ABCs of ESG
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Insights and Market Perspectives

The ABCs of ESG

Author: Sound Choices

October 23, 2018

 


October 22-26 is Responsible Investment Week in Canada (#RIWeek18) with the theme “Make Money, Responsibly.” We are proud to be a founding member of the Responsible Investment Association (RIA), a national non-profit organization dedicated to the advancement of responsible investing in Canada, and a founder/chair of the Toronto Responsible Investment Working Group.


Interest in responsible or sustainable investing has increased substantially over the last decade around the world and across all audiences, from individual, retail investors to the largest institutions. Global responsible investment strategy assets now total almost $23 trillion or 26% of all professionally managed assets, an increase of 25% since 2014.1

What is sustainable investing?

Sustainable investing or responsible investing refers to investment strategies that consider environmental, social and governance (ESG) issues as part of the investment decision-making process.

In contrast, traditional investment strategies have limited or no focus on incorporating ESG factors into the investment process.

What is ESG? 

ESG refers to environmental, social and governance issues that are taken into consideration when making investment decisions. Integrating ESG factors into investment processes can help identify key risk and return drivers in portfolios:

  • Environmental: Impact on the environment, which can include water usage, pollution, waste management, energy efficiency, gas emissions and climate change.
  • Social: Human rights, health and safety, employee working conditions, community impact, diversity, population and demographics change, consumption patterns and shareholder reputation.
  • Governance: Board independence and diversity of board members, alignment of shareholders and executives, compensation, shareholders rights, transparency/disclosures and business ethics/culture.

Investment Approaches  

Within Sustainable Investing there are a wide range of approaches with significant differences in the investment objective and purpose of each type of approach:

Exclusionary Screening

Definition
Excludes companies, sectors, or countries based on ethical, moral or religious beliefs.
Purpose/Objective
Eliminates exposure to a group of securities while pursuing a traditional investment objective (e.g., growth, income, etc.)

ESG Factor Integration

Definition
Combines ESG data, research and analysis together with traditional financial analytics in making investment decisions.
Purpose/Objective
Incorporates ESG risks into analysis of all holdings, as a component of financial risk with two primary objectives, to reduce risk or improve performance alongside pursuing a traditional investment objective (e.g., growth, income, etc.)

Shareholder Engagement

Definition
Uses the power of shareholder and stakeholders to influence corporate behaviour.
Purpose/Objective
Influence corporate behaviour in order to move forward an issue related to Environment, Social or Governance initiatives.

Thematic Investing

Definition
Invests in sustainable businesses that are related to and likely to benefit from specific impact themes (e.g., energy efficiency, green infrastructure, clean fuels, low-carbon transportation infrastructure, etc.)
Purpose/Objective
Provides investors exposure to a specific theme, linked to one or more issue areas where social or environmental need has the opportunity to create growth opportunities.

Impact Investing

Definition
Investments made into companies, organizations, and funds with an intent to generate a measurable, beneficial social & environmental impact alongside a financial return.
Purpose/Objective
Focus on generating a measurable impact in one or more issue areas.

AGF is a leader in the development of sustainable investing. To find out how AGF integrates ESG into our investment decision-making and ownership practices, visit the Investment Stewardship page on AGF.com


1 “2016 Global Sustainable Investment Review,” Global Sustainable Investment Alliance.
The information contained in this brochure is based on material believed to be reliable and is provided as a general source of information and should not be considered any personal investment or tax advice. Every effort has been made to ensure accuracy at the time of publication, however AGF Management Ltd. and its affiliates cannot guarantee 100% accuracy of this information, and is not responsible for the development and creation of this material. It is important for investors to consult with their financial and tax advisors before making any investment or tax planning decisions. 
The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances. 

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

© 2018 AGF Management Limited. All rights reserved.

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