In this modern world, sustainability has become a promotional word on every occasion, including investing. Sustainable investing, which abides by the environmental, social, and governance (ESG) criteria, is a relatively new term in the investment world. Upon this, the KPMG has made a report that reveals how experts may perceive the new type of investment.
Understanding sustainable investing
Sustainable investing put their decision in investing in environmental, social, and governance (ESG) criteria. Investopedia further defines the environmental as concerns on how a company performs sustainability in their business. Social criteria are closely related to employees, suppliers, customers, and the communities the business operates. How do certain companies interact with people involved in the business? The last criteria, governance, observes a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
How people perceive the “new” investing
The KPMG has done a report involving 135 investment managers and pension consultants from 13 different countries. Upon the report, the majority of people are still unsure whether ESG-oriented sustainability investing equals superior returns, Investopedia quotes.
A similar number of institutional investors are also questioning how ESG-oriented sustainability investing may affect the possibility of large future risks and financial results of the company they invest in. In addition, the majority of hedge fund managers and institutional investors agree that they are still uncertain of the outcomes of the ESG-oriented investments. About one of the tenth institutional investors has instead revealed that they have been receiving negative results.
The future for sustainable investing
A large portion of hedge fund managers has found hindrance in collecting concrete data related to ESG data. However, hedge fund managers mentioned different approaches in applying ESG criteria for investment decisions.
The first one is integration, which relates closely to key sustainability factors identification and how investors weigh it in the decision process. Following the integration is negative screening. Investors may simply cross out companies that violate their “value system”. This approach is by far the easiest to follow. The last approach is shareholder engagement. In this approach, investors appeal companies into adopting ESG criteria.
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