With the majority of investors believing it makes sense to incorporate environmental, social, and governance (ESG) factors into investment decisions, and surveys highlighting significant growth in ESG adoption by both asset owners and consultants, let’s look at approaches to ESG implementation.

The Global Sustainable Investment Alliance (GSIA) definitions of sustainable investment have emerged as a global standard of classification, according to GSIA’s 2016 Global Sustainable Investment Review.

  • Negative/exclusionary screening: The exclusion from a fund or portfolio of certain sectors, companies, or practices based on specific ESG criteria.
  • Positive/best-in-class screening: Investment in sectors, companies, or projects selected for positive ESG performance relative to industry peers.
  • Norms-based screening: Screening of investments against minimum standards of business practice based on international norms.
  • ESG integration: The systematic and explicit inclusion by investment managers of environmental, social, and governance factors into financial analysis.
  • Sustainability themed investing: Investment in themes or assets specifically related to sustainability (such as clean energy, green technology, or sustainable agriculture).
  • Impact/community investing: Targeted investments, typically made in private markets, aimed at solving social or environmental problems, and including community investing, where capital is specifically directed to traditionally underserved individuals or communities, as well as financing that is provided to businesses with a clear social or environmental purpose.
  • Corporate engagement and shareholder action: The use of shareholder power to influence corporate behavior, including through direct corporate engagement (communicating with senior management and/or boards of companies), filing or co-filing shareholder proposals, and proxy voting that is guided by comprehensive ESG guidelines.

According to the GSIA, the dominant ESG adoption strategies, measured by assets, are negative or exclusionary screening and ESG integration, as shown below. Implementation via exclusionary screening has been more popular in Europe, while ESG integration has been the more prominent implementation method in the United States.

It is also interesting to see the growth in these strategies over the past two years ending December 2016. Growth has been strong across implementation methods, but impact/community investing and sustainability-themed investing stand out.

Certainly, this is an area on which tour high-net-worth and endowment/foundation clients are already focused.

In future posts, my colleague Vivian Thurston will describe our ESG journey at William Blair, providing some examples from the consumer sectors.

 

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Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

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Copyright © 2019 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

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Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus and summary prospectus, which you may obtain by calling +1 800 742 7272. Read the prospectus and summary prospectus carefully before investing. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2019 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

Statement of Financial Condition | NMS Rule 605 & 606 | Business Continuity Plan | UK Stewardship Code
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