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A new guide shows how equity investors can integrate ESG and make good profits

The Principles for Responsible Investment (PRI) says the impact of ESG integration on investing is increasingly becoming quantifiable, and thus, integrating ESG as a standard practice for investments holds promise for planet and profit.

Investors are often blindsided as to how businesses which they invest their money in fare in terms of the business operations impacting the environment.

But thanks to a new guide released by the Principles for Responsible Investment, a UN-supported investment analysts network, equity investors now have a way to follow their money and see whether their investments are fueling sustainable business, or doing the opposite.

Released earlier this month, the practical guide to ESG integration for equity investing provides benchmark analysis of ESG impacts of businesses based on actual business operations scenarios.

The good news for equity investors is that ESG integration is shown to align with goals for profit while still benefitting society and the planet in the long term.

The guide showcased ESG integration in four investment strategies, namely, fundamental, quantitative, smart beta, and passive investment.

For example, German-based fund manager Union Investment invested in a European sports shows and equipment manufacturing company which sub-contracts labour from Southeast Asia.

With the retail industry being rife with cases of labour exploitation, where workers are paid poorly and made to work overtime without pay in squalid production floors, ESG integration into this company focused on improving supply chain labour conditions.

Years of dialogue with the company resulted in it adopting better work conditions, which then created a happier workplace with highly-motivated workers. This in turn boosted the company’s revenue per square feet.

Externally, the company also enjoyed better reputational branding by not being associated with unfair labour. This in turn resulted in increased brand loyalty from consumers, who demonstrate an increasing preference to buy responsibly sourced and manufactured products.

Equity investors who are actively involved in overseeing business operations may have a better way to ensure ESG considerations are integrated across the supply chain day-to-day, but how about passive investors who simply make their money work for them through the companies they invest in?

The PRI said even passive investors can make sure their money isn’t fuelling irresponsible business simply by choosing the companies carefully.

The PRI guide showed that a passive investor simply screened out companies that do not comply with the UN Global Compact, or those involved in the production or sale of tobacco products, or controversial weapons.

The PRI believes that Integrating ESG factors into analysis of listed equity investments is the most widespread responsible investment practice in the market today.

Now that the impact of ESG issues on investment portfolios is increasingly becoming quantifiable, the PRI is anticipating a greater move towards responsible investment in financial markets and towards more sustainability in the wider economy, making ESG integration a standard practice among investors.

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