Summary ESG and impact investing | SpringerLink link.springer.com
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The text discusses the growth of sustainable investing, the differences between ESG and impact investing, the potential for improved returns through enhancing ESG, the diversified portfolios of SRI funds, the impact of climate change risk on bond pricing, and the potential underperformance of socially responsible corporations in bullish markets.
Slides
Slide Presentation (13 slides)
Key Points
- ESG investing is gaining ground as a result of growing climate risk awareness and societal issues.
- Over 35% of global assets under management are sustainable investments.
- ESG investing is distinct from impact investing, with impact investing focusing on generating positive social and environmental impact alongside a financial return.
- There is a risk of confusion between ESG and impact investing, which may mislead investors and lead to a withdrawal from sustainable investment endeavors.
- The definition of impact investing is evolving rapidly, with calls to add a fifth tenet called "additionality" to better preserve the original intent.
Summaries
42 word summary
Sustainable investing is growing, with 35% of global assets classified as sustainable investments. ESG and impact investing differ. Enhancing ESG can improve returns. SRI funds have diversified portfolios. Climate change risk affects bond pricing. Socially responsible corporations may underperform in bullish markets.
87 word summary
Sustainable investing is gaining popularity, with 35% of global assets classified as sustainable investments. Asset managers are adopting ESG approaches and offering new investment options. It's important to distinguish between ESG and impact investing. ESG incorporates extra-financial information, while impact investing seeks companies that address environmental and societal issues. Research shows that enhancing specific ESG variables can boost portfolio returns. SRI funds have diversified portfolios, lower cash holdings, and lower fees. Climate change risk affects corporate bond pricing, and socially responsible corporations may underperform in bullish markets.
160 word summary
Sustainable investing is growing in popularity, with 35% of global assets now classified as sustainable investments. Asset managers are adopting Environmental, Social, and Governance (ESG) approaches and offering new investment options to support a sustainable economy. However, it is important to distinguish between ESG investing and impact investing to avoid misleading investors. ESG investing involves incorporating extra-financial information into investment decisions, while impact investing actively seeks out companies that address environmental and societal issues while generating financial returns. Defining impact investing is challenging due to evolving practices, and asset managers must navigate changing legislation and label standards. Research shows that enhancing specific ESG variables can enhance portfolio returns without interfering with smart beta portfolios. Socially Responsible Investment (SRI) funds have diversified portfolios, lower cash holdings, and lower fees compared to conventional funds. Additionally, studies highlight the impact of climate change risk on corporate bond pricing and the negative relationship between above-average socially responsible corporations and equity performance in bullish markets.
449 word summary
Sustainable investing is becoming increasingly popular, with over 35% of global assets under management now classified as sustainable investments. This trend is evident in the growing number of asset managers adopting an Environmental, Social, and Governance (ESG) approach and offering new investment options to support a sustainable economy. However, it is important to differentiate between ESG investing and impact investing to avoid misleading investors and potential withdrawal from sustainable investments.
ESG investing involves incorporating extra-financial information into investment decisions and has gained prominence in mainstream financial markets. On the other hand, impact investing goes beyond ESG by actively seeking out companies that address environmental and societal issues while generating financial returns. Impact investing requires intentional strategies, evidence-based approaches, impact performance metrics, and transparent communication.
Defining impact investing is challenging due to the evolving nature of investment practices. The Global Impact Investing Network (GIIN) provides a broad definition that highlights the intention to generate positive social and environmental impact alongside financial returns. However, there is ongoing debate about whether additional criteria, such as "additionality," should be included in the definition to better capture the original intent of impact investing. Asset managers face the task of complying with changing legislation and label standards while shaping new investment practices.
Research published in the Journal of Asset Management sheds light on the relationship between ESG factors and financial performance. Studies have shown that enhancing specific ESG variables can enhance portfolio returns, and ESG performance does not interfere with return in smart beta portfolios. Comparisons between Socially Responsible Investment (SRI) funds and conventional funds reveal that SRI funds have diversified portfolios, lower cash holdings, and lower fees. Additionally, research has explored the pricing of corporate bonds in relation to climate change risk, finding that the risk of sea-level rise increases the cost of debt. Another study reveals a negative relationship between above-average socially responsible corporations and equity performance during bullish markets. Finally, research addresses biases in ESG scores and proposes a correction mechanism.
In conclusion, sustainable investing is gaining momentum, but it is crucial to differentiate between ESG investing and impact investing. ESG investing incorporates extra-financial information into investment decisions, while impact investing aims to generate positive social and environmental impact alongside financial returns. Defining impact investing remains a challenge, and asset managers must navigate evolving legislation and label standards while shaping new investment practices. Research demonstrates the potential for enhanced returns through specific ESG variables, the compatibility of ESG performance with smart beta portfolios, and the distinct characteristics of SRI funds compared to conventional funds. Furthermore, studies highlight the impact of climate change risk on corporate bond pricing and the negative relationship between above-average socially responsible corporations and equity performance in bullish markets.
555 word summary
Sustainable investing, driven by concerns about climate risk and societal issues, is rapidly gaining popularity. According to a 2021 report, over 35% of global assets under management are sustainable investments. This trend is reflected in the increasing number of asset managers adopting an Environmental, Social, and Governance (ESG) approach and offering new investment vehicles for investors to go green and support a sustainable economy. However, there is a risk of confusion between ESG investing and impact investing, which could mislead investors and lead to a withdrawal from sustainable investments. ESG investing focuses on including extra-financial information in decision-making processes, while impact investing aims to generate positive social and environmental impact alongside financial returns.
The roots of ESG investing can be traced back to Socially Responsible Investing (SRI), which involves excluding certain companies or sectors based on social parameters. ESG investing, on the other hand, includes extra-financial information to make investment decisions and has become increasingly relevant in mainstream financial markets. While ESG investing focuses on the negative impact of extra-financial issues on company valuation, impact investing goes a step further by actively seeking out companies that proactively address environmental and societal problems. Impact investing involves deliberate intentionality, evidence-based strategies, impact performance metrics, and transparency in communication.
Defining impact investing is a challenge due to the rapid evolution of investment practices. The Global Impact Investing Network (GIIN) has provided a broad definition that emphasizes the intention to generate positive social and environmental impact alongside financial returns. However, there is ongoing debate about whether additional criteria, such as additionality, should be included in the definition to better capture the original intent of impact investing. Asset managers face the challenge of complying with evolving legislation and label standards while shaping new investment practices.
Several articles in the Journal of Asset Management explore the relationship between ESG factors and financial performance. One study found that enhancing specific ESG variables for portfolio companies tends to boost returns. Another study focused on smart beta portfolios and concluded that ESG performance does not interfere with return. Comparisons between Socially Responsible Investment (SRI) funds and conventional funds revealed that SRI funds have more diversified portfolios, lower cash holdings, and charge smaller fees. Additionally, research examined the pricing of corporate bonds in relation to climate change risk and found that the risk of sea-level rise increases the cost of debt. Another study explored the relationship between corporate social responsibility and financial performance, revealing a negative relationship between above-average socially responsible corporations and equity performance during bullish markets. Finally, research investigated the impact of aggregation rules for ESG scores and proposed a correction mechanism to address biases.
In conclusion, sustainable investing is gaining momentum, but it's important to distinguish between ESG investing and impact investing. ESG investing incorporates extra-financial information into investment decisions, while impact investing seeks to generate positive social and environmental impact alongside financial returns. Defining impact investing is an ongoing challenge, and asset managers must navigate evolving legislation and label standards while shaping new investment practices. Research shows that enhancing specific ESG variables can boost returns, ESG performance does not interfere with return in smart beta portfolios, SRI funds have distinct characteristics compared to conventional funds, climate change risk affects the pricing of corporate bonds, and there is a negative relationship between above-average socially responsible corporations and equity performance during bullish markets.