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ESG integration strategies are essential in evaluating how well a company’s investments impact the three major areas of the ESG: Environment, Social, and governance. The growing demand for incorporating ESG integration investment strategies into the investment process has increased.
Most sustainable investors demand more trustworthy and similar ESG elements to help them grasp and understand the ESG performance of a company. ESG strategies are beneficial to investors who aim to make a positive impact on the world and obtain massive returns for their investments.
Below we look at the ideals of ESG integration Investment Strategies and how they benefit the investor.
7 Ideals of ESG Integration Investment Strategies
There are critical ideals of ESG integration to consider during the decision-making process. Also, to define ESG integration, it’s necessary to consider the integrations that align with your goals, values, and financial motivation.
1. Negative Screening
The definition of ESG integration under negative screening refers to removing certain companies from a sustainable, ethical portfolio. The elimination is based on specific goals. For example, if the financial goal is to impact climate change and decrease its impact, the investor will likely eliminate all companies dealing with fossil fuels from the portfolio.
2. Positive Screening
Positive screening focuses on selecting high-performing companies from defined characteristics to invest in. if you want to define ESG integration in this element, you may want to factor in performance measures that align with your goals in screening the high top performers.
For example, you may invest in high-performing companies with a low carbon footprint or those with a diverse board of directors.
3. Portfolio Tilt
Portfolio tilt involves investors changing the measure of ESG investments within a portfolio to be higher than non-ESG investments while maintaining a balance that matches the target index. Mist investors define ESG integration in this ideal by opting for investments across the market index that maintain the same level of risk while promoting ESG goals.
4. ESG Integration
In this strategy, investors must analyze the companies by applying ESG factors in depth while analyzing investments before making an investment decision.
Investors’ definition of ESG integration within this ideal is that the valuation and performance measures of the companies supporting ESG practices should be appropriate and promising to allow investors to make profitable returns for their investments.
5. Shareholder Action
It is also referred to as engagement and focuses on the investors using their power to influence the companies they have invested in to seek out material ESG opportunities. Most investors choose material ESG opportunities as it does not only increase their returns but also reflect their values.
While investing in the definition of ESG, integration in this ideal is the ability of the investors to invest in material ESG opportunities, thus contributing to a positive impact on the environment and society.
6. Activist Investing
The integration of the ESG investment strategy in the activist investing ideal focuses on purchasing equities in a company to influence and change how they operate and pursue those using ESG initiatives in their companies.
In this ideal, the integration of ESG investment strategies involves influencing companies to take up ESG approaches and ideals to make a meaningful definition of ESG integration within their companies.
7. Sustainability themed Investing
It’s an ESG strategy that allows the investor to identify issues relating to sustainability, thus allowing them to invest in market indexes of companies. In this ideal, the investor creates a list of the ideal companies that address a sustainability element and make investments across specific sectors and different levels of risks.
The ideals of ESG integration investment strategies allow investors to define ESG integration based on the choice of the ideal strategies. Also, it allows the investors to make a positive impact across the ESG elements while making good returns on their investments.