“ESG integration” is a term that is often used quite loosely, or as in this tool, as a general umbrella term interchangeable with Sustainable and Responsible investment. Some investors will use the term “integration” to describe a conventional investment approach augmented by shareholder engagement and proxy voting as and when ESG issues arise. It can also refer to the fact that investment analysts have access to sectoral, thematic and company-specific ESG research and subscribe to the notion that some ESG issues can be financially material, but there may be no formal or systematic framework for embedding this into valuations and investment decisions.
However, a stricter definition of “ESG integration” relates to practices at the cutting edge, where ESG issues are explicitly and systematically integrated into strategy, ideas generation and stock selection with the aim of influencing the financial performance of investment portfolios.
The Chartered Financial Analyst (CFA) Institute and PRI conducted an analysis of the ESG integration techniques of investors across the globe, the Chartered Financial Analyst (CFA) Institute and PRI collated the many ESG integration techniques used by practitioners and developed an overview illustration of how ESG integration is done across different asset classes.
Overview of ESG integration techniques