Corporate Finance I
Reading 31. Introduction to Corporate Governance and Other ESG Considerations
Learning Outcome Statements
j. describe environmental and social considerations in investment analysis;
k. describe how environmental, social, and governance factors may be used in investment analysis.
CFA Curriculum, 2020, Volume 4
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Subject 9. ESG Considerations for Investors
ESG Factors in Investment Analysis
Environmental factors include natural resource management, pollution prevention, water conservation, energy efficiency and reduced emissions, the existence of carbon assets, and adherence to environmental safety and regulatory standards.
Social factors generally pertain to human rights and welfare concerns in the workplace, product development, and, in some cases, community impact.
ESG Implementation Methods
Asset managers and asset owners can incorporate ESG issues into the investment process in a variety of ways.
- Negative screening is a type of investment strategy that excludes certain companies or sectors from investment consideration because of their underlying business activities or other environmental or social concerns.
- Positive screening and best-in-class strategies focus on investments with favorable ESG aspects.
- Thematic investing focuses on a single factor, such as energy efficiency or climate change.
- Impact investing strategies are targeted investments, typically made in private markets, aimed at solving social or environmental problems.