Practical analysis for investment professionals
27 March 2014

Poll: Which ESG Factors Are You Most Able to Include in Your Investment Decisions?

For many investors, environmental, social, and governance (ESG) issues are material considerations in investment decisions. ESG issues include air and water pollution, climate change, employee retention, data protection, executive remuneration and separation of the roles of chairman and CEO. The bankruptcy of Enron Corp., the oil spill in the Gulf of Mexico, and the death of miners in Marikana, South Africa, are but a few examples of the importance of ESG issues in investments.

When we asked subscribers of the CFA Institute Financial NewsBrief which type of issues they are most capable of including in their investment decisions, governance issues topped the list.

With respect to environmental, social and governance (ESG) issues, which of the following are you most capable of including in your investment decisions?
Poll: Which ESG Factors Are You Most Able to Include in Your Investment Decisions?

This result is probably unsurprising. Governance issues (which 45% of respondents chose) tend to apply to companies regardless of the type of business they are in, and they seem to be easier to relate to than environmental issues (which 16% of respondents chose) and social issues (which 6% of respondents chose).

But a third of our 509 respondents reported that they do not include ESG issues in investment decisions at all. It is not clear why. An obvious explanation is passive investing. However, other reasons could also be at work. For instance, ESG issues tend to be difficult to measure, whereas finance relies heavily on quantitative methods. Also, ESG issues play out in the long term, whereas financial markets tend to be focused on the short term.

To see how ESG issues are being included in investment decisions, read the short interview “How to Integrate ESG Considerations into Investments.”

Do you want to participate in future polls? Sign up for the CFA Institute Financial NewsBrief.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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About the Author(s)
Usman Hayat, CFA

Usman Hayat writes about sustainable, responsible, and impact investing and Islamic finance. He is the lead author of "Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals," and the literature review, "Islamic Finance: Ethics, Concepts, Practice." He is interested in online learning and has directed three e-courses for CFA Institute: "ESG-100," "Islamic Finance Quiz," and "Residual Income Equity Valuation." The other topics he writes about are macroeconomics and behavioral finance. Previously, he was a content director at CFA Institute. He is a former executive director at the Securities and Exchange Commission of Pakistan (SECP). He has experience working in securities regulation and as an independent consultant. His qualifications include the CFA charter, the FRM designation, an MBA, and an MA in Development Economics. His personal interests are reading and hiking.

2 thoughts on “Poll: Which ESG Factors Are You Most Able to Include in Your Investment Decisions?”

  1. EJ Biz says:

    I just wrote a research thesis on corporate governance and foreign investment and I reach similar conclusions. Apart from passive investing, I would also argue that activism has a monitoring cost which some are not willing to take on due to the “free-rider” problem…
    I would also argue that the important role played by Governance can be verified in the fact that investors from developed markets carry a home-equity bias due to differing standards and notably a lack of trust in enforcement in foreign countries. Thus, well governed firms can stand out vis-à-vis poorly governed ones…

  2. Philip says:

    The lack of reliable reliable data from from other regions (Can be a foreign country or a region within a developed market), the unquantifiable nature of some ESG factors, other natural and man made factors also are a challenge. Social media is slowly – to some extent – bridging the gap; however, in my opinion there is need to carve a niche for a “beyond the metrics” piece to complete the picture. Just a thought……

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