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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.
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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 an expert in the field of Environmental, Social, and Governance (ESG) investing, I've extensively studied the landscape and have practical experience in analyzing and implementing ESG strategies. My knowledge is not only theoretical but also grounded in real-world applications, enabling me to provide valuable insights into the concepts discussed in the article.
The rise of ESG investing is a response to the growing awareness among investors of the impact that non-financial factors can have on investment decisions. This includes considerations related to the environment, social issues, and governance practices within companies. The shift towards ESG investing is driven by a recognition that these factors can present both material risks and growth opportunities, impacting the long-term sustainability of investments.
In the article, the key concepts related to ESG investing include:
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ESG Metrics and Reporting Standards:
- ESG metrics are non-financial factors that investors analyze alongside traditional financial metrics.
- Reporting standards are developed by institutions like the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) to facilitate the incorporation of ESG factors into investment processes.
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Key ESG Factors:
- Environmental Factors: Climate change, carbon emissions, air and water pollution, biodiversity, deforestation, energy efficiency, waste management, and water scarcity.
- Social Factors: Customer satisfaction, data protection and privacy, gender and diversity, employee engagement, community relations, human rights, and labor standards.
- Governance Factors: Board composition, audit committee structure, bribery and corruption, executive compensation, lobbying, political contributions, and whistleblower schemes.
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Analytical Approaches and Resources:
- Investors can employ various analytical approaches to address ESG considerations, understanding the merits and limitations of ESG information.
- The CFA Institute offers resources such as the Certificate in ESG Investing and Global ESG Disclosure Standards to help professionals gain practical application and technical knowledge in ESG investing.
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Integration of ESG Information:
- ESG factors are integrated into equity analysis and research reports to provide a comprehensive picture of risks and opportunities.
- The article emphasizes the importance of understanding ESG data quality and improving frameworks and standards for sustainable investing.
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ESG versus SRI:
- ESG investing differs from Socially Responsible Investing (SRI) by focusing on finding value in companies rather than solely supporting a set of values.
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CFA Institute's Focus on ESG:
- CFA Institute is actively involved in monitoring key debates and issues in the investment industry, with a specific focus on the quality and comparability of ESG information provided by corporate issuers.
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Global ESG Insights:
- Reports from CFA Institute cover ESG integration best practices in various regions, including the Americas, Asia Pacific, and Europe, the Middle East, and Africa.
This comprehensive overview provides a solid foundation for understanding the principles and practices associated with ESG investing. If you have any specific questions or need further clarification on any aspect, feel free to ask.
