Readers of the weekend papers will have noticed that, in recent months, it is rare to open one without seeing an article highlighting the impact that poor ESG standards have on share prices. You may, like many of our clients, be curious to know more about ESG, its connection to investment value, and our ESG criteria here at Investec.  

ESG is an acronym that stands for “environmental, social, and governance”, relating to considerations that are often made during the investment process. Whilst many investors have a broad understanding of what ESG refers to, some may not fully comprehend the different guises this can come in and what each letter of the acronym refers to.

“Environment” relates primarily to the impact a company’s actions and this has on the world, from their carbon emissions to their use of natural resources, destruction of land, deforestation, and air or water pollution.

“Social” issues can be the level of racial or gender diversity within a company, human rights violations, the standard of working conditions, and the company’s wider engagement with the community that they are part of.

Finally, “governance” matters are typically centred on the behaviour of the board and company executives. This may be the composition of the board and independence of the executives, corruption and bribery within the company, and remuneration.

At Investec, we believe that these three factors should form part of the investment decision-making process as standard, along with the more traditional metrics that are used.

We use a third-party company, Sustainalytics, to provide information on the various factors explained above, allowing us to judge a company’s future prospects based on both financial and ESG considerations, and our proprietary APPROVED process for funds links ESG to manager assessment.

Along with this, we have a fiduciary responsibility to ensure we are acting in the client’s best interests. As part of that, we exercise the right to vote and ensure that we engage with companies and their boards where it is required. Our Corporate Governance Committee plays a crucial role in the oversight of our voting and engagement with companies on behalf of our clients.

Due to the bespoke nature of our portfolio management process, we can tailor portfolios to meet clients’ individual requirements. We are, therefore, able to tilt portfolios to have greater exposure towards equities and funds that are focused on sustainability outcomes, such as generating renewable energy, reducing carbon emissions, treating wastewater, providing social housing or helping to provide tertiary education to students.

If you’d like to discuss aligning your investments with any of these goals, alongside your personal objectives, you can speak to your investment manager.