About ESG
ESG stands for environmental, social and corporate governance. It refers to a broad range of factors that drive long term company performance; examples range from human capital management to carbon emissions; stakeholder relations to board independence.
These factors (and many others) have well-documented consequences for long-term business success, even though they are largely absent from conventional accounting or analytic methods.
The rise of ESG parallels the rise of institutions – particularly pension funds – as market participants for two compelling reasons.
Permanent share ownership
The investment horizon of a typical institutional investor extends decades into the future. They’re not interested in a company’s cost savings this quarter if it’s at the expense of the next five years’ revenue.
Universal ownership
Size and diversification mean many institutions are likely to own virtually all of the stocks in the market over time. In this context, underpinning the benchmark is as important as outperforming the benchmark. Protecting market confidence is more critical than confidence in any selection of stocks.