ESG Investments - Sebastian Vinkenflügel
Description:
Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.
Environmental criteria consider how a company performs as a steward of nature.
Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates.
Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Enablers:
- Driven by Investors (large corporations and end consumers)
- Standardization for ESG definitions and how to measure ESG factors. There is currently no standardization of the ESG definition. The correlation between ESG definitions is moderate to low.
- ESG investment will outperform traditional, non-ESG Investments.
- Following ESG criteria it is possible avoid companies whose practices could signal an environmental risk factor and the companies' stock prices dropped and resulted in billions of dollars in associated losses.
Inhibitors:
- By following ESG investment, investors may miss investments in companies who are willing to change to renewable energy but are still operating mostly in the traditional industries.
- No standardization for ESG definitions and how to measure the factors. Especially for the governance part, the correlation between ESG data vendors is still close to 0.
- ESG investments fall back behind in return of investments
Paradigms:
Direct correlation between investments and green energy. Removes the access to capital for non-ESG companies (divestment), which can lead to a change in their behavior investing more into renewable energies.
Experts:
- Prof. C. Lütolf-Carroll
- R. Hujanen
Timing:
Currently ongoing. There are currently $35 trillion USD under management in ESG investments. The ESG investment is expected to reach $53 trillion by 2025.
Websites:
https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp
https://theconversation.com/esg-investing-has-a-blind-spot-that-puts-the-35-trillion-industrys-sustainability-promises-in-doubt-supply-chains-170199
https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by-2025-a-third-of-global-aum/
Divesting Harvard’s Endowment https://services.hbsp.harvard.edu/api/courses/885150/items/221009-PDF-ENG/sclinks/e81d46000a335124f769f9001edc54d6
https://www.msci.com/our-solutions/esg-investing/esg-ratings