ESG & Responsible Investment

Responsible investment is a fast-growing investment approach integrating non-financial factors – usually referred to ESG (Environmental, Social and Corporate Governance) factors – in the investment process, in order to enhance long-term investment returns and reduce risks.

Responsible investment has evolved from Socially Responsible Investment (SRI), Ethical Investment or Mission-based investing, which integrate personal and societal values with investment decisions. Over time, the major players leading in implementation have shifted from retail investors to institutional investors. ESG integration is broadly implemented by many of the world largest asset owners such as pension funds and insurance companies. Especially in Europe, a very significant proportion of mainstream active fund or asset managers have now joined the “ESG” market in one way or another.

Responsible investors assess corporate sustainability in making investment decisions or ownership policies by using sustainability questionnaires, ESG indices and the scoring information obtainable from various providers, and public information such as annual reports, corporate responsibility report (or sustainability report) and corporate websites.

Major Sustainability Indices

Dow Jones Sustainability Indexes (DJSI)

The Dow Jones Sustainability Indices were launched in 1999 as the first global sustainability benchmarks. The indexes are offered cooperatively by SAM Indexes and Dow Jones Indexes, the marketing name and a licensed trademark of CME Group Index Services LLC. The family tracks the stock performance of the world’s leading companies in terms of economic, environmental and social criteria. The indexes serve as benchmarks for investors who integrate sustainability considerations into their portfolios, and provide an effective engagement platform for companies who want to adopt sustainable best practices.

FTSE4Good Index

The FTSE4Good Index Series has been designed to objectively measure the performance of companies that meet globally recognised corporate responsibility standards. Transparent methods and criteria make FTSE4Good a valuable tool for consultants, asset owners, fund managers, investment banks, stock exchanges and brokers when assessing or creating responsible investment products.

MSCI Global Equity Indices

The MSCI Global Equity Indices are widely tracked global equity benchmarks that serve as the basis for over 400 exchanged traded funds throughout the world. The indices provide extensive equity market coverage for over 70 countries in the developed, emerging and “frontier” markets, applying a consistent index construction and maintenance methodology. This methodology allows for meaningful global views and cross-regional comparisons across all market capitalization size, sector and style segments and combinations.

Major Sustainability-Related Initiatives

UN Principles for Responsible Investment (PRI)

The United Nations-backed Principles for Responsible Investment Initiative (PRI) is a network of international investors working together to follow the six “Principles for Responsible Investment” in practice.

The Principles were devised by the investment community. They reflect the view that environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios and therefore must be given appropriate consideration by investors if they are to fulfill their fiduciary (or equivalent) duties. The Principles provide a voluntary framework by which all investors can incorporate ESG issues into their decision-making and ownership practices and, in so doing, better align their objectives with those of society at large.

UN Global Compact

The United Nations Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption.

Carbon Disclosure Project (CDP)

The Carbon Disclosure Project is an independent not-for-profit organization holding the largest database of primary corporate climate change information in the world.

Global Reporting Initiative (GRI)

The Global Reporting Initiative (GRI) is a network-based organization that produces a comprehensive sustainability Reporting Framework that is widely used around the world. GRI is committed to the framework’s continuous improvement and application worldwide. GRI’s core goals include the mainstreaming and facilitation of disclosure on environmental, social and governance performance.

GRI’s Reporting Framework is developed through a consensus-seeking, multi-stakeholder process. Participants are drawn from global business, civil society, labor, academic and professional institutions.