Question

The topic of Socially Responsible Investments and ESG factors has become very important for most large investment firms over the last couple of years. Please describe what criteria might be relevant for a portfolio strategy that follows SRI / ESG targets.

Answer 1

As truly stated above, the SRI and ESG factors have become important in deciding the portfolios of the investors, especially institutional investors. Though there is no straight set of rules and regulations for adopting ESI strategies into the portfolio, there are some guidelines that the investor can follow.

1.Negative and Norms based screen.

Investing in goods such as tobacco and alcohol is to be completely avoided. International Standards like the OECD or US Model should be followed for standardisation.

2. ESG integration

Here the investor looks into and analyses the target company's ESG profile. The investor looks for any potential risks before deciding whether or not to make an investment. Nowadays there are many agencies that give these services and the investor can look into the ESG score of the company

3.ESG-focused shareholder activism

This is usually common where the shareholders themselves push for change. The large investors usually have the power to make a change for the betterment. Strategic voting by the shareholders can bring about positive changes.

4.Sustainable portfolio

Sustainability of the company depends upon both financial and non-financial factors. A company with sound and ethical policy is bound to do well in the long term. So investing in such companies would be a good idea.

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