Hedge Fund Question of the Week – Summer Edition – No. 7

What is “ESG”?

Answer:  Environmental, Social and (corporate) Governance, and generally refers to an investment approach that takes these factors into consideration.

It may seem a bit late to write about ESG and many people have already written excellent articles describing ESG investing.  But since the term seems to be gaining traction – institutional investors are increasingly asking about a manager’s ESG policies – and some uncertainties still exist, here are few points to keep in mind.  

First, the components of ESG are not necessarily new.  Many managers have long taken into consideration some or all of these factors without necessarily referring to them as E, S or G.  Second, ESG covers a fairly broad range of areas, and different institutional investors and managers may have different areas of emphasis.  Third, it might be sufficient for a manager to have a written policies even if those policies don’t cover all areas that might be included in each component of ESG.  A written policy can help demonstrate an awareness of ESG principles.  Finally, institutional investors may ask whether the manager itself applies ESG principles to the way it runs its own business.