ESG investing

ESG stands for environmental, social and corporate governance, the areas in which good behaviour is particularly sought.

Environmental, social and governance (ESG) investing – and similar approaches such as socially responsible investing (SRI) – aim to make money while avoiding firms viewed as having a negative impact on the world and encouraging those that have a positive impact.

Traditionally, ethical approaches to investing mostly focused on not buying any companies in businesses that the investor dislikes (known as exclusionary screening). This often included vice stocks, such as tobacco, gambling or alcohol. Some investors might aim to invest more in industries that they view as beneficial (such as renewable energy), although this was less common. However, as demand for ethical investing has become greater, this has evolved to include approaches where the investor takes into account whether a firm is trying to follow the highest standards they can within their sector. Hence an oil producer or a miner would not necessarily be ruled out in some funds or portfolios that follow ESG mandates, so long as the firm is attempting to minimise the adverse impacts of what it does. Some ESG investors will also engage with firms to try to pressure them to follow more sustainable practices, rather than simply not investing in them.

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