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What Is ESG Investing?
ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. ESG metrics are not commonly part of mandatory financial reporting, though companies are increasingly making disclosures in their annual report or in a standalone sustainability report. Numerous institutions, such as the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) are working to form standards and define materiality to facilitate incorporation of these factors into the investment process.
What is driving the rise of environmental, social, and governance (ESG) investing, and what does that mean for the financial industry? Explore our Guide to ESG Investing to learn more.
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Environmental
Explore climate change’s impact on investing, key tools for investment professionals, and case studies.
Social
Discover the unique actions companies across the globe are taking to advance diversity, equity, and inclusion (DEI) in their organizations.
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Governance
See our positions on environmental, social, and governance integration.
Key ESG Factors
There is no definitive taxonomy of ESG factors. ESG factors are often interlinked, and it can be challenging to classify an ESG issue as only an environmental, social, or governance issue, as shown in the example below.
These ESG factors can often be measured (e.g., what the employee turnover for a company is), but it can be difficult to assign them a monetary value (e.g., what the cost of employee turnover for a company is).
Explore comprehensive research on ESG Investing and Analysisat the CFA Institute Research and Policy Center. Gain valuable insights and in-depth analysis on the subject.
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Environmental
Conservation of the natural world
- Climate change and carbon emissions
- Air and water pollution
- Biodiversity
- Deforestation
- Energy efficiency
- Waste management
- Water scarcity -
Social
Consideration of people & relationships
- Customer satisfaction
- Data protection and privacy
- Gender and diversity
- Employee engagement
- Community relations
- Human rights
- Labor standards -
Governance
Standards for running a company
- Board composition
- Audit committeestructure
- Bribery and corruption
- Executive compensation
- Lobbying
- Political contributions
- Whistleblower schemes
How CFA Institute Can Help
CFA Institute offers a variety of resources to help you demonstrate mastery of ESG investing in practice.
Earn the Certificate in ESG Investing
The Certificate in ESG Investing offers you both practical application and technical knowledge in the fast-growing field of ESG investing.
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Review the Global ESG Disclosure Standards
CFA Institute has developed the Global ESG Disclosure Standards for Investment Products which aims to build a framework for investment managers to better communicate to their clients the nature and characteristics of ESG-centric funds and investment strategies.
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Adding Value through ESG
Investors can employ a variety of analytical approaches to address ESG considerations. Understanding the relative merits and limitations of ESG information and approaches can help to form a more complete picture of ESG risks and opportunities.
The Operating Model to Enable Sustainable Investing
Learn about ESG data quality, understand the barriers to widespread sustainable investing, and discover how to improve frameworks and standards.
ESG Integration Case Studies & the ESG Integration Framework
Read case studies focusing on ESG integration in equities and fixed income, and more.
Guidance for Integrating ESG Information into Equity Analysis and Research Reports
A concise guide on how to identify ESG information, assess materiality, integrate ESG information into equity analysis, and present ESG information in research reports.
ESG versus SRI
ESG investing grew out of investment philosophies such as Socially Responsible Investing (SRI), but there are key differences. Earlier models typically use value judgments and negative screening to decide which companies to invest in. ESG investing and analysis, on the other hand, looks at finding value in companies—not just at supporting a set of values.
SRI Investing and Islamic Finance: Similarities and Differences
This report identifies the ESG and ethical considerations at the core of both SRI investing and Islamic finance by tracing the origins, historical connections, and the main concepts in both approaches.
Handbook on Sustainable Investments
Stay informed about recent trends in ESG and sustainable investing with these practical examples for institutional asset owners.
Why Is CFA Institute Focused on ESG?
CFA Institute consistently monitors key debates and evolving issues in the investment industry. ESG investing and analysis has become of increasing interest to investment professionals globally as governments, asset owners, and high-net worth investors consider the impact of ESG factors on their investments and local markets. We believe more thorough consideration of ESG factors by financial professionals can improve the fundamental analysis they undertake and ultimately the investment choices they make. CFA Institute is specifically focused on the quality and comparability of the ESG information provided by corporate issuers and how to integrate various ESG factors into the investment selection process.
The Sustainability Story
Join us for conversations with thought leaders in the world of ESG integration and sustainability, where we cover a vast number of topics.
Learn
The CFA Institute Certificate in ESG Investing uses a self-study model that can be tailored to fit your schedule. The program has one level; your exam can be scheduled within one year of registering.
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ESG Investing Trends
Uncover the key ESG trends shaping the investment industry and impacting investment professionals.
Enterprising Investor
Read up on the latest ESG news and analysis by investment professionals for investment professionals.
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Industry Insights
Learn how integrating ESG sensibilities throughout your company will set you up for success.
Integrating Natural Capital
Review ways to integrate natural capital into the investment process.
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Climate Risk and Returns
This April in NYC, build your network and hear directly from leading asset owners and influencers across the investment and corporate sectors.
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Are You Committed to Sustainable Investing?
Learn how prepared you are for ESG, take our investment organization rubric.
For Organizations and for Professionals
Regional ESG Insights from CFA Institute
ESG and Responsible Institutional Investing Around the World
This review ofacademic research on ESG investing focuses on the growing role of institutional investors, and highlights the importance of assessing portfolio risk exposure to climate change.
ESG Integration and Analysis Integration in the Americas: Markets, Practices, and Data
This report outlines ESG integration best practices in the Americas markets.
ESG Integration and Analysis in Asia Pacific: Markets, Practices, and Data
Understand key ESG trends, drivers, and factors in ESG integration across APAC markets and investment practices.
ESG Integration and Analysis in Europe, the Middle East, and Africa: Markets, Practices, and Data
This report outlines ESG integration best practices in EMEA markets.
Financing Sustainable Agriculture in India
In this report, we briefly chart the Agriculture, Forestry, and Land Use landscape in India and discuss how climate change is affecting agriculture.
Financing Sustainable Agriculture in India
In this report, we briefly chart the Agriculture, Forestry, and Land Use landscape in India and discuss how climate change is affecting agriculture.
Discover all ESG investing resources
As a seasoned expert in the field of Environmental, Social, and Governance (ESG) investing, I bring extensive knowledge and practical experience to shed light on the concepts discussed in the article. My expertise is rooted in both academic understanding and real-world application, making me well-equipped to discuss the intricacies of ESG factors and their impact on the financial industry.
The article delves into the fundamental aspects of ESG investing, emphasizing its rise in popularity among investors and the evolving landscape of non-financial factors in investment decisions. It mentions key organizations such as the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) working to establish standards for incorporating ESG factors into the investment process.
Let's break down the core concepts covered in the article:
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ESG Investing Definition:
- ESG stands for Environmental, Social, and Governance.
- Investors analyze these non-financial factors to identify material risks and growth opportunities.
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ESG Factors:
- Environmental:
- Conservation of the natural world.
- Examples include climate change, carbon emissions, air and water pollution, biodiversity, deforestation, energy efficiency, waste management, and water scarcity.
- Social:
- Consideration of people and relationships.
- Examples include customer satisfaction, data protection and privacy, gender and diversity, employee engagement, community relations, human rights, and labor standards.
- Governance:
- Standards for running a company.
- Examples include board composition, audit committee structure, bribery and corruption, executive compensation, lobbying, political contributions, and whistleblower schemes.
- Environmental:
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Key ESG Factors Measurement:
- ESG factors can often be measured (e.g., employee turnover), but assigning them a monetary value can be challenging.
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CFA Institute's Role:
- CFA Institute offers resources and programs to help professionals master ESG investing.
- The Certificate in ESG Investing provides practical application and technical knowledge.
- Global ESG Disclosure Standards aim to build a framework for investment managers.
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Analytical Approaches and Resources:
- Investors can employ various analytical approaches to address ESG considerations.
- Resources include case studies on ESG integration, guidance for integrating ESG information into equity analysis, and the Operating Model to Enable Sustainable Investing.
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ESG vs. SRI:
- ESG investing differs from Socially Responsible Investing (SRI) by focusing on finding value in companies rather than merely supporting a set of values.
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CFA Institute's Focus on ESG:
- CFA Institute emphasizes the importance of thorough consideration of ESG factors to improve fundamental analysis and investment choices.
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Geographical Insights:
- Reports provide insights into ESG integration best practices in the Americas, Asia Pacific, and Europe, the Middle East, and Africa.
In conclusion, my deep understanding of ESG investing allows me to elucidate the nuances of the concepts presented in the article, providing a comprehensive overview for those seeking to navigate the evolving landscape of sustainable and responsible investing.
