Wonder

Research Outline

Prepared for Will | Delivered February 18, 2020

ESG Investing

Goals

To understand what investors are concerned about when it comes to ESG and what they want from sustainable investments.

Early Findings

According to a Morgan Stanley poll, 84% of investors are "actively considering" using ESG standards in their investing activities.
Companies are becoming more aware of how their ESG principles are integrated into brand value and customer perception.
There are different approaches to ESG investing. Some use a barebones "negative screening", which just means avoiding certain sectors like tobacco or oil & gas. Other investors have a more proactive approach, deliberately seeking positive social or environmental impact in the companies they invest in.
Furthermore, investors can broadly be segmented in active versus passive. Passive investors are happy to use third-party aggregate data or a single ESG score to determine whether they are interested in investing or not. An active investor takes a more involved approach, using data from several sources and making their own judgment on whether they are happy with the ESG initiatives of that investment.
 ESG is not a defined metric, hence why investors or fund managers tend to make their own definitions of what they qualify as ESG investing.
One fund manager states that clients have "varying degrees of understanding of what ESG integration means."
There is no universally-accepted standard for ESG-type reporting. This may lead to some smaller companies have an artificially lower ESG score as they do not have the resources to compute all data points.
 Moringstar's Sustainbility Rating is a "risk" rating using all three factors (environmental, social and governance) to assign an absolute ranking to portfolio companies.
 MSCI assigns ratings based on "leader", "average" or "laggard", more similar to a credit bureau rating. They evaluate funds based on peer groups, carbon intensity, sustainable impact, exclusion criteria and more.