Probably the most widely recognised iteration of sustainable investment, ESG stands for environmental, social and governance and is a reporting system used by investors to measure certain standards within a framework, relating to the practices of companies'. They use the outcomes to assess companies and make their investment decisions. The data itself is usually submitted by the company in question on a yearly basis and asks them to disclose certain data points and pieces of information.
As per the name, there are 3 pillars of measurement with various criteria; here are some examples of the types of data and practices being reported on:
Environmental: Recycling practices, pollution, climate policies or greenhouse gas emissions.
Social: Employee development and diversity, relationships with suppliers or communes where they operate, working conditions.
Corporate Governance: Transparency with stakeholders, the running of the business, accountability and leadership.
In short, investors using ESG data in their investments have the intent to invest in a business with good ratings, ratings that give us an idea of how well a company is managing their business. There are also many rating agencies that exist to gather and analyse this data for investors.
Socially Responsible Investing, incorporates ESG criteria into the analysis done during the investment process. Investment decisions are based on both the long term profits as well as the implications for society and the environment. Investors, therefore, review and balance the social costs of their investments in conjunction with the forecasted profits.
SRI investing is sometimes called ‘Ethical Investing’ or ‘Green’ investing and some investors also consider SRI to stand for Sustainable, Responsible and Impact Investing – so there are even blurred lines in each of these formats. One thing that these types of investing strategies often do is rule out investment in certain industries (for example fossil fuels or tobacco companies) they also ensure that the companies included meet certain ethical criteria.
Triple Bottom Line
Triple bottom line investing or TBL is a framework that uses the pillars of Social, Environmental and Financial performance measures. This form of sustainable investment can also be referred to as ‘People, Planet, Profit’ or ‘Integrated bottom line’ or even ‘3BL’.
Triple bottom line investing aims to measure the impact of these companies’ on the world. However, the measurement of said impact is still a grey area.