Investment eco-system development and environmental, social, and governance (ESG) strategy.
We help our clients create business resilience and growth by providing ESG strategy design, investment support and portfolio development.
What is ESG investing?
ESG investing is the consideration of environmental, social, and governance factors alongside financial factors in the investment decision-making process and refers to a set of investment criteria that are used to evaluate a company’s performance, taking into consideration the following factors:
Environmental factors assess a company’s impact on the environment, such as its carbon footprint, use of renewable resources, waste management, and environmental policies.
Social factors consider a company’s relationships with its employees, customers, suppliers, and communities. This includes labour practices, diversity and inclusion, human rights, consumer protection, and community engagement.
Governance factors evaluate a company’s leadership, board structure, executive compensation, shareholder rights, and transparency.
ESG investing has become increasingly popular in recent years as investors have become more conscious of the impact of their investments on the environment and society.
Many investors believe that companies that operate in a sustainable and responsible manner are more likely to be successful in the long term and generate better returns for their investors.
Investment decisions made by businesses and organisations are frequently examined. Not only may sustainable investment increase financial performance, but it can also build credibility and have a tangible and intangible beneficial effect.
AT PLUTUS, WE KNOW WE ARE:
Plutus Consulting Group consults on responsible investing strategies and is made up of investment professionals with experience in the ESG funds investment process.
Recent ESG Investing projects
Our ESG investing process
Our ESG investing process typically involves several steps. Here is a general outline of our process:
1. Define Investment themes and objectives: Determine your investment goals and objectives. These could include financial returns, ESG impact, risk management, or alignment with personal values.
2. ESG Integration: Take ESG considerations into account while making investing decisions. This entails taking ESG risks and opportunities into account in addition to conventional financial indicators when assessing investment alternatives. ESG integration can be conducted by using internal research, outside data, and rating sources, or skilled ESG investment managers.
3. ESG Data and Analysis: Collect and analyse relevant ESG data on companies or investment options under consideration. This can include ESG ratings, company reports, regulatory filings, sustainability disclosures, and third-party research. The data should provide insights into a company’s environmental impact, social practices, and governance structure.
4. ESG Screening: Apply ESG screening criteria to narrow down the universe of potential investments. Screening can involve negative screening, which excludes companies involved in controversial industries like tobacco or weapons. It can also include positive screening, which focuses on companies with strong ESG performance in specific areas of interest.
5. ESG Due Diligence: Conduct in-depth research and analysis on the ESG performance of shortlisted companies. This may involve evaluating their policies, practices, performance metrics, and ESG-related controversies. Engage with company management or attend shareholder meetings to gain additional insights.
6. Portfolio Construction: Construct a diversified investment portfolio that aligns with your ESG objectives and risk-return profile. This may involve allocating assets to companies or funds with superior ESG performance or thematic investments targeting specific sustainability issues (e.g., renewable energy, clean technology, or social impact projects).
7. Active Ownership and Engagement: Engage with investee companies as a shareholder to promote ESG improvements and influence corporate behaviour. This can include voting in shareholder meetings, participating in dialogue with company management, filing shareholder resolutions, or joining collaborative initiatives with other investors.
8. Monitor and Review: Continuously monitor the ESG performance and impact of your investments. Stay updated on ESG-related news, regulatory changes, and evolving industry practices. Regularly review your portfolio to ensure it remains aligned with your investment objectives and adjust as needed.
It is worth noting that the ESG investing process can vary depending on individual preferences, investment strategies, and available resources. Some investors may choose to focus on specific ESG themes or sectors, while others may adopt a broader approach encompassing multiple ESG factors.
Our ESG investing strategies
In developing our ESG investing strategy we consider amongst other factors, your investment objectives, risk tolerance, and personal values.
Here are our suggested steps in developing an ESG investing strategy:
1. Define your Investment Objectives: Clearly articulate your financial goals and desired ESG outcomes. Determine if you prioritise financial returns, ESG impact, risk management, or a combination of these factors. This will help shape your investment strategy.
2. Identify ESG Themes and Priorities: Determine the ESG themes or areas that align with your values and interests. Common themes include climate change, renewable energy, water conservation, gender equality, labour rights, diversity and inclusion, or corporate governance. Prioritise the ESG issues that matter most to you.
3. Set ESG Criteria: Establish specific ESG criteria to guide your investment decisions. Consider which ESG factors are most important for each investment, such as carbon emissions, labour standards, board diversity, or supply chain management. Create a framework that aligns with your values and allows for consistent evaluation of potential investments.
4. ESG Data and Research: Identify reliable sources of ESG data and research to inform your investment decisions. This can include ESG ratings agencies, sustainability reports, industry publications, and reputable research organisations. Leverage this information to assess companies’ ESG performance and compare investment options.
5. Screening and Selection: Apply your defined ESG criteria to screen potential investments. This can involve negative screening to exclude companies involved in controversial industries or positive screening to select companies with strong ESG performance in your identified themes. Consider using ESG ratings and data providers to streamline the screening process.
6. Diversification and Risk Management: Build a diversified ESG portfolio to manage risk and optimise returns. Allocate your investments across different asset classes, sectors, and geographies. This helps spread risk and reduces exposure to specific ESG-related risks. Consider diversifying across different ESG themes and investment strategies as well.
7. Active Ownership and Engagement: Determine your level of engagement with investee companies. This can involve actively participating in shareholder meetings, voting on ESG-related resolutions, and engaging in dialogue with company management to promote positive change. Decide whether you prefer a collaborative approach through partnerships with other ESG investors or engaging independently.
8. Monitor and Evaluate: Continuously monitor and evaluate the ESG performance of your investments. Stay updated on ESG-related news, regulatory changes, and emerging sustainability trends. Regularly assess your portfolio’s alignment with your ESG objectives and adjust as needed.
9. Seek Professional Advice: If needed, consider consulting with financial advisors or ESG specialists who can provide guidance tailored to your specific needs. They can assist with identifying investment opportunities, conducting due diligence, and providing insights on ESG trends and best practices.
ESG principles may vary based on the structure of your firm or organisation.
Remember that creating an ESG investing strategy is a dynamic process that is likely to change as you gain expertise, and as ESG practises and market conditions change.
We will regularly review and refine your strategy, assess your ESG scorecard, ensuring alignment with your goals and values.
What topics fall under ESG investing and how are they rated?
Climate change, Greenhouse gas (GHG) emissions, Resource depletion, Waste and pollution, Water and energy efficiency, Deforestation Biodiversity.
Working conditions, Equal opportunities, Human rights, Employee diversity, Health and safety, Child labour and slavery Community engagement, Philanthropy.
Business ethics, Executive pay, Board diversity and structure, Bribery and corruption, Political lobbying and donations, Tax strategy, Compliance.
ESG (Environmental, Social, and Governance) topics cover a wide range of issues related to sustainability, responsible business practices, and corporate behaviours.
Here are some common key ESG topics:
1. Climate Change: This includes the impact of greenhouse gas emissions, the transition to renewable energy, climate-related risks and opportunities, and strategies for mitigating and adapting to climate change.
2. Environmental Impact: Focuses on a company’s environmental performance, including resource consumption, waste management, pollution control, biodiversity conservation, and sustainable use of natural resources.
3. Social Impact and Human Rights: This involves assessing a company’s treatment of employees, labour practices, diversity and inclusion, human rights policies, community relations, and impact on local communities.
4. Corporate Governance: Refers to the structures, processes, and policies by which companies are directed and controlled. It includes issues such as board diversity, executive compensation, transparency, ethics, and anti-corruption measures.
5. Supply Chain Management: Examines how companies manage their supply chains to ensure responsible sourcing, fair labour practices, the avoidance of child labour and forced labour, and reduction of environmental and social risks throughout the supply chain.
6. Stakeholder Engagement: Focuses on how companies engage and communicate with their stakeholders, including shareholders, employees, customers, communities, and NGOs. It emphasises the importance of dialogue, accountability, and responsiveness to stakeholder concerns.
7. Impact Investing: Involves investing in companies, organisations, or projects with the intention of generating measurable social or environmental impact alongside financial returns. It seeks to address specific social or environmental challenges through investment strategies.
8. The United Nations’ 17 Sustainable Development Goals (SDGs) provide a framework for addressing global challenges such as poverty, hunger, gender equality, and clean energy.
ESG investing frequently aims to contribute to these goals through investment strategies that are aligned with the SDGs.
These are only some of the many ESG concerns that investors, firms, and stakeholders evaluate when evaluating sustainability and responsible business practises. Other evaluating criteria should be considered on an individual case basis.
The importance of these topics varies depending on the industry, region, and individual investor preferences.
As a responsible, ethical, and established company based in London with offices in Zurich and Luxembourg we offer ESG investing expertise that covers and is not limited to:
- Environmental, social and governance (ESG) data mapping and management
- Scoring customisation
- Industry framework development
- Third party research
- Green finance advice and transition
ESG investing news
To keep up with the latest ESG research and investment news, we suggest that you subscribe to credible financial and ESG resources, such as:
- Bloomberg Green
- Financial Times (FT) Sustainable Investing
- Reuters Sustainable Business
- Environmental Finance
- Responsible Investor
- ESG Today
- ESG Clarity
By following these publications, you can access the latest news, trends, reports, and insights related to ESG investing.
Additionally, you can also explore the websites of ESG data providers like MSCI, Sustainalytics, or Refinitiv to access their research, reports, and ESG-related news.
FREQUENTLY ASKED QUESTIONS
We have answered some frequently asked questions relating to ESG investing.
Q. What is meant by ESG investing?
ESG investing is the consideration of environmental, social, and governance factors alongside financial factors in the investment decision-making process.
Q. What type of investment is ESG?
Investors interested in ESG often seek to align their investments with their personal values and support companies that are working towards a more sustainable and responsible future.
Q. What are the three pillars of ESG?
The ESG pillars are Environmental, Social, and Governance, which refers to a set of criteria used to evaluate the sustainability and ethical impact of an investment.
Q. Is ESG investing a good idea?
Determining whether ESG investing is a good idea depends on your individual investment goals, values, and risk tolerance. It is important to conduct thorough research, consider your financial objectives, and seek guidance from a financial advisor with expertise in ESG investing to determine if it aligns with your investment strategy and personal values.
Q. What are the differences between Sustainable, Ethical and Impact investing?
Sustainable investing takes a broader approach by considering the overall sustainability practices of companies or portfolios. It examines factors like carbon footprint, resource usage, labour practices, board diversity, and corporate governance.
Ethical investing, also known as socially responsible investing (SRI), refers to an investment approach that considers both financial returns and ethical or moral values. It involves investing in companies, industries, or funds that align with an investor’s personal beliefs, values, or ethical principles and can be very subjective in nature.
Impact investing has a narrower focus on investments that have a direct, measurable, and intentional impact on specific social or environmental issues.
Q. What are the risks of ESG investing?
ESG investing carries certain risks that investors should consider:
Performance and financial risks: ESG investing may involve excluding certain sectors or companies based on ESG criteria, which could limit diversification opportunities.
Lack of standardisation and inconsistency: The lack of standardised definitions and criteria for ESG factors can create inconsistency and confusion.
Greenwashing and misrepresentation: Companies may engage in greenwashing by presenting misleading or exaggerated claims about their ESG practices.
Regulatory and policy risks: ESG investing is influenced by regulations and policies related to sustainability and disclosure requirements.
Data quality and availability: ESG investing relies on accurate and reliable data regarding a company’s environmental, social, and governance practices.
Ethical and value conflicts: ESG investing involves subjective judgments and may be influenced by individual values and beliefs.
Market and liquidity risks: Concentrating investments in specific ESG-focused sectors or companies may expose investors to additional risks.
Additionally, investing in smaller or less liquid ESG-focused companies may pose liquidity risks, making it challenging to buy or sell shares at desired prices.
It is important for investors to thoroughly research and understand the risks associated with ESG investing, carefully evaluate ESG data and methodologies, and consider their own investment objectives and risk tolerance before making investment decisions.
Consulting with a financial advisor with expertise in ESG investing can also provide valuable guidance.
Q. Why is ESG controversial?
ESG investing can be controversial due to a variety of reasons and include:
Lack of standardisation: The lack of standardised definitions and criteria for ESG factors makes it difficult to compare and evaluate companies consistently.
Greenwashing and misleading claims: Greenwashing refers to companies presenting a misleading or exaggerated image of their environmental or social practices to appear more sustainable than they are.
Trade-offs between financial returns and ESG goals: Critics of ESG investing argue that a strict focus on ESG criteria may result in sacrificing potential financial returns.
Subjectivity and bias: ESG criteria often involve subjective judgments and can be influenced by personal values and beliefs.
Limited data and information: Availability and reliability of ESG data can be a challenge.
Impact on fiduciary duty: Critics argue that ESG investing may conflict with the fiduciary duty of investment managers to prioritise financial returns for their clients.
Despite the controversies, ESG investing continues to gain traction as more investors recognize the potential benefits of considering sustainability and ethical factors in their investment decisions. Efforts are being made to address some of the challenges, such as improving standardisation, data quality, and transparency in the ESG space.
Speak to our ESG Investment consultants
So, you may be thinking, what makes Plutus different?
- We are adaptable, agile, and skilled at managing ambiguity well.
- We are extremely well-connected.
- We become your trusted partner.
Above all, we have a definite sense of true north; we’re ethical, experienced, strategic, and smart.
Simply, if you are considering ESG investments we are a safe pair of hands, and we will support you to get the job done.
Our global network of astute specialists is supported by strategic partnerships and alliances; a team of people who rapidly understand issues and provide realistic, effective, and efficient solutions.
Please contact us to find out more about our unique, personal, and client-centric way of working.