05 January 2015

Best of 2014: ESG Issues in Investing

Posted In: Best Of

Here are our best blog posts on environmental, social, and governance (ESG) issues in investing.

Sustainable Investing: Five Videos to Watch

Despite the growing understanding of the various ESG issues in investing, many would agree that there is still a lack of clarity about sustainable investing. Here are five carefully curated videos on sustainable investing that stand out for their focus, the strength of their content, and the effectiveness of their delivery.

ESG Issues in Investing: What, Why, and Why Not? (Part 1) and (Part 2)

To gain clarity on the debates surrounding ESG issues in investing, CFA Institute hosted an online forum that featured five distinguished panelists:

Amy Domini, CFA, founder and CEO of Domini Social Investments;
Andrew Canter, CFA, CIO of Futuregrowth;
Jeroen Bos, CFA, head of global equity research at ING Investment Management;
Raj Thamotheram, a strategic adviser on long-term wealth creation and CEO of Preventable Surprises; and
Roger Urwin, global head of investment content at Towers Watson.

Each panelist brought firsthand experience gained over many years of dealing with ESG issues in investing. In the first part, I focused on the reasons for considering ESG issues in investing. The second part examined why many investors seem unable or unwilling to systematically consider these issues.

How to Integrate ESG Considerations into Investments

A lot is said about the materiality of ESG issues in investment decision making. Examples of these issues include air and water pollution, biodiversity, climate change, customer satisfaction, employee attraction and retention, product misselling, separation of chairman and CEO, bribery and corruption, executive remuneration, and so on. It is hard to argue that these issues are not material — but how do you actually integrate these ESG considerations into investment decision making in practice? To answer this question, we interviewed Jeroen Bos, CFA.

Shareholder Value Maximization: The World’s Dumbest Idea?

An important reason why investors are likely to underweight ESG issues is short-termism, and one of the key causes of short-termism is the notion of shareholder value maximization. If you agree with the economist John Maynard Keynes that “ideas shape the course of history,” then you ought to agree that the history of modern business and finance has been shaped by one influential idea: that the job of a company’s management is to maximize shareholder value. But according to James Montier, a distinguished investment professional and behavioral finance writer, shareholder value maximization is “a bad idea.”

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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About the Author(s)

Usman Hayat, CFA

Usman Hayat, CFA, 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;" the literature review, "Islamic Finance: Ethics, Concepts, Practice;" and the research report "Sustainable, Responsible, and Impact Investing and Islamic Finance: Similarities and Differences." 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. 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. He has served as a content director at CFA Institute. He is a former executive director at the Securities and Exchange Commission of Pakistan (SECP) and former CEO of the Audit Oversight Board (Pakistan). His personal interests include reading and hiking.