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ESG Integration in Investment Management: Myths and Realities

Until very recently, there has been considerable doubt, especially among mainstream investors, that companies with high ESG “scores” could succeed in producing competitive returns for their shareholders. Studies of the last three decades of the 20th century have reported that what was then known as Socially Responsible Investing (or SRI)—an investment approach that worked mainly by screening out the companies with the lowest ESG scores or entire industries such as tobacco and alcohol—produced shareholder returns that were often below market averages. And this finding has in turn contributed to the widespread perception that corporate efforts to address environmental and social…

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Finding the Signal in the Noise

The practice of integrating ESG factors into investment decisions is growing, but are asset managers and owners making the right decisions about which factors to focus on? The answer is, not often enough, despite research by George Serafeim and others at Harvard Business School which concluded that company financial performance is only improved if a given ESG factor or issue is relevant, or material, to that company in its industry peer group. As a growing number of asset owners and asset managers are interested in integrating material ESG factors into their investment decisions. Those not yet involved in the practice…

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Fighting climate change with active engagement

With a stroke of his pen, President Donald Trump took a major step toward eliminating his predecessor’s landmark climate policy — the Clean Power Plan. Unveiled by President Obama in August 2015, the plan sought to fight global warming by reducing carbon dioxide emissions from power plants. Now, under President Trump, the plan and other environmental policies are in more danger than ever. Some investors might be tempted to approach this new normal by reinvesting in oil and gas. But thus far, the reaction has been more muted. Read more in Pensions&Investments.

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Widening Our View of ESG Investing

ESG investing strategies—investing plans that align with a healthy environment, social responsibility, and good governance—are some of the fastest-growing strategies in asset management. According to a report from the US SIF Foundation, US institutional assets invested in ESG strategies reached $8.72 trillion in 2016, up 32.7 percent from 2014. ESG’s appeal isn’t limited to larger investors; ESG mutual funds are among the most talked-about consumer investment products on the market. Approximately $81 billion of environmentally friendly “green bonds” were issued last year, according to data from the Climate Bonds Initiative, providing institutional and retail investors a way to engage in ESG investing….

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Asness and Sorkin Miss the Point When It Comes to ESG

When a leading investment professional like Cliff Asness and a respected journalist like Andrew Ross Sorkin offer their opinions, mainstream investors tend to listen. It’s unfortunate, then, that both these pundits have recently added to the confusion about the impact of ESG on investment returns. More importantly, neither offer any practical insight into how to breakthrough this confusion and how to use ESG as a value driver for both investors and society. In a recent blog post titled “Virtue is its Own Reward: Or, One Man’s Ceiling is Another Man’s Floor,” Asness laid out his argument for why ESG investing…

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Incorporating ESG Considerations into Engagement Practices

Most of the discussion around environmental, social and governance (ESG) investing is about screening out companies that don’t fit specific ESG criteria. But investors who take this approach are missing an opportunity to drive change by engaging directly with companies and pushing for improved sustainability practices. The High Meadows Institute recently published a report that explores the different ways investors can engage with companies and provide evidence that shareholder engagement really works — in terms of both profit and ethics. For the purpose of this report, we examined both private and public engagement practices. Private engagement is the route used most often…

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Deutsche Bank ESG Investing Conference 2016

Earlier this month, High Meadows Institute President Chris Pinney joined colleagues in the corporate and financial sectors to discuss the complexities of climate risk and environmental, social and governance (ESG) investing. Deutsche Bank held its first annual ESG Investing Conference in Boston on November 1st to address the growing impacts climate change and short-termism have on businesses and investors. Hard hitting topics that were discussed throughout the day included the opportunities ESG integration presents investors in uncertain times, what the transition to a clean energy economy could look like for companies and communities, and what the ESG investment space is…

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Mainstreaming ESG in Capital Markets: Time for Industry Leadership

To date, the sustainability and social responsibility agenda for the corporate and financial sectors has been driven largely by external stakeholders. Previously this was characterized primarily by boycotts and campaigns against business organized by activists. Today, there is a much greater focus on engaging with business, seen through multi-stakeholder initiatives such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), which are focused on creating frameworks, standards and metrics for companies and investment managers to demonstrate that they are managing responsibly. While these initiatives have played a critical role in getting environmental, social and governance (ESG) issues…

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Business Leadership Tackling Big Challenges

Education, housing, healthcare, and transportation. These are the four top challenges the Alliance for Business Leadership attempted to solve during last Monday’s Leader Lab. The conference was the first in a series of convenings of progressive civic and business leaders set on finding solutions to the key issues effecting cities throughout Massachusetts. High Meadows Institute staff and a board member participated in the brainstorming sessions on all four challenges and found the following recurring themes emerged from the discussions. Increasing business participation in tackling these challenges is crucial. Governments and communities cannot do it alone. Business would benefit financially from improvements…

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Will 2016 be a tipping point for ESG integration in capital markets?

What a difference a year can make. When HMI finished a survey on the current state of play of ESG integration in global capital markets last spring, it seemed clear that the incentive systems needed to drive true environmental, social and governance (ESG) integration in mainstream capital markets, particularly in the US, were a long way off. While the efforts of UNPRI, SASB and the many other SRI programs are to be noted, our research showed that in reality these initiatives alone are insufficient to drive significant change for most mainstream asset owners and managers. As we start 2016, there…

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