From the course: Introduction to ESG: Environmental, Social, and Governance

Sustainable investing

From the course: Introduction to ESG: Environmental, Social, and Governance

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Sustainable investing

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- [Instructor] United Nations: The Principles for Responsible Investments, or the PRI, defines responsible investment as a strategy and practice to incorporate environmental, social and governance factors in investment decisions and active ownership. ESG, sustainable, social responsible and impact investing all have subtle differences from one another, but each of these refers to investing based upon environmental, social and governance factors to better manage risk, leverage opportunities and generate strong long-term returns. Although sustainable investing and responsible investing are phrases that are often used interchangeably. Bridges Fund Management published this study in 2015 that found the major difference between the two as the following. Responsible investment seeks to mitigate risky ESG practices in order to protect value while sustainable investment aims to adopt progressive ESG practices that may enhance value. Investment managers are being called upon to analyze how well the company balances the issues of their shareholders, employees, customers and community while delivering both financial returns and social and environmental impact for their clients. There are various ESG investment approaches that can be grouped into five categories. Screening. Can be done by negative screening or positive screening. ESG integration. Thematic investing. Engagement, also called active ownership. And impact investing. According to the Schroeder's Institutional Investor Study 2021, out of all of these approaches, ESG integration to the investment process was the most preferred approach to sustainable investments. Next, I will discuss how each sustainable investment approach works with examples.

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