ESG and Investing

As we deal with increasing threats from climate change and ecological crisis, ESG has become an area of focus and there are also more ESG insurance products and MPF funds in the marketplace.  Let’s have a closer look of ESG from different perspectives:

Selection criteria and reporting guidelines

While ESG initiatives should contribute to the greater good of the society, different selection criteria are used to determine if a company is qualified to be included.  Some may exclude certain industries such as tobacco, liquor, fossil fuels, weapon and gun manufacturing and gambling.  Some may focus more on renewable resources while others may focus on better governance to promote diversity in management ranks. 

Tesla, for example, is the largest electric vehicle manufacturer in the US and is an obvious candidate on most ESG lists.  However, it is excluded by some due to concerns on its governance.  

Hong Kong Stock Exchange(HKEx) will also require all listed companies to disclose ESG related efforts according to its reporting guidelines.

Since there is a variety of ESG standards, you might want to have a closer look at the investment mandate of a fund or ESG reporting of a company and see if it aligns with your values before making an investment decision.

Investment performance

There is no clear evidence that ESG funds or companies generate better returns so far.  Some ESG funds even underperformed as they avoided fossil-fuel companies which performed better than renewable energy companies in recent years. 

Higher management fee may also have an impact on performance if additional resources are required to create and maintain ESG standards and guidelines and analyse companies.  

Conclusion

While it may not be realistic to come up with one global ESG standard, different ESG guidelines should be clearly defined and simple enough for most to comprehend.

If you’re looking to apply an ESG lens when choosing an investment, it’s critical to review its mandate and ESG efforts and see if it aligns with your own values.  

Last Update: 29^th September 2023