What are ESG factors?

The integration of ESG factors in an investment portfolio. It is the fact of taking into account 3 factors in investment decisions.

- Environmental:

climate change;

carbon emissions, biodiversity;

water resources and water pollution;

energy resources and management.

 Governance:

accounting practices;

risk management;

board independence,

ethics policies;

executive remuneration;

data protection.

Governance takes into account other factors. For example, whether compensation is aligned with business results and performance. Also whether the management team communicates clearly, effectively and transparently with shareholders.

Social:

human rights;

civil liberties;

employee health and safety;

diversity, equity and inclusion (DEI);

crime and safety;

trust in society and institutions;

exclusion, poverty and wage gaps.

Typically, portfolio managers evaluate companies based on their profitability. Funds that include ESGs in their investment process also rate the following:

-Management of carbon footprint.

-Social action (labour standards, gender equality.

-The quality of the company's management.

What is an SRI factor?

When researching investments that incorporate ESG factors, you may see another acronym: SRI.

It stands for "socially responsible investment". This is another approach to sustainable investing.

SRI funds screen investments according to ethical criteria based on personal, political or religious beliefs.

In SRI, ESG factors are used to screen investments. Typically, this means screening out the following sectors:

tobacco;

alcohol

fossil fuels,

or firearms.

But there are other possible exclusion factors:

arms and defence;

gambling and other potentially addictive activities or substances;

human rights violations;

investments linked to terrorist groups.

ESG funds also take these factors into account. But their main objective is still financial performance. In contrast, when it comes to SRI, investors are generally speaking to those who have more fundamental motivations.

If you have any questions, please feel free to contact me at my email address: patrick@patrickjosephservicesfinanciers.com

Source Sunlife