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Friday, March 1, 2024

ESG And What It Is

Let’s make sure you know exactly what’s cracking.

ESG has become the new buzz-word, and not just in the financial industry. But why, and why should you care?

ESG refers to three broad non-financial factors namely environmental, social, and governance that investors use in their analysis process – hence “ESG”. These socially conscious investors use the environmental, social and governing criteria to select potential investments. By evaluating the ESG criterions of companies, it aids investors to identify potential material risks and possible growth opportunities.

Now that we have covered the basics of what ESG is, why is it relevant outside of the financial industry? Consider the current global environment and concerns such as climate change, gender equality, supply-chain management and ethical business policies, corporate transparency and diversity. In as much, ESG is a crucial consideration.

Does ESG inclusion really benefit your investment portfolio?

ESG business practices, at their very core, attempt to establish a business which is sustainable. Sustainable businesses are GOOD INVESTMENTS! Over the years, including ESG investment screening criteria and investments in your investment portfolio has proven to enhance investor return.

However, ESG not only benefits investors, but all business stakeholders. The proven societal benefit of ESG business practices, is why all our Portfolios and investment decisions promote our proprietary active SRI investment screening criteria to promote sustainable businesses!

So, what is SRI you may now ask?

SRI refers to socially responsible investing. SRI goes one step further than ESG by actively eliminating or selecting investments according to specific ethical guidelines. Unlike ESG analysis, which shapes valuations, SRI uses various ESG factors to apply negative or positive screens on the investment universe.

In doing so, SRI seeks to be more than a mere “tick-box” approach – that which ESG so often becomes. The “tick-box” approach often applied through ESG does not necessarily lead to sustainable investment returns; it more so illustrates the investment manager’s misperception regarding the objectives and goals of ESG. This is especially what ResAm avoids.

And ResAm’s view?

ResAm views the term ESG as a broad-brush stroke notion applied to an extensive investment universe. We feel that the concept of ESG is not specific enough to generate sustainable investor returns. Accordingly, we developed an internal SRI investment philosophy. This internal philosophy describes our view that sustainable businesses, listed and unlisted, generate sustainable returns.

At ResAm we have dedicated significant time and resources in developing an internal strategy consistent with what we believe is an SRI investment policy that promotes the goals of sustainability and ESG. Our SRI policy allows us actively to screen investments either for inclusion (positive) or exclusion (negative) factors.

Our team utilises our SRI model and criteria in two products. The first is through the extensive review of investment managers utilisation of SRI and ESG principles and investments prior to inclusion into our fund of funds composite portfolios. We also manage an SRI multi-asset portfolio which draws on our team’s extensive knowledge and experience.

Get in touch with us if you would like to know more or get more information regarding how our services can assist you.