Gustavo Bernal Torres
ESG as Process Versus ESG as Product
Understanding the difference can help clear up confusion around ESG investing.
ESG is literally information, in the form of data and ratings, about ESG challenges that may affect an investment decision. It is an input to the investment process. ESG analysis is the interpretation of that information as part of the investment decision-making process. Similarly for companies, ESG analysis informs the capital-allocation process.
First, to clarify your understanding of ESG, it’s helpful to distinguish between ESG as process and ESG as product. Second, virtually all asset managers use ESG as process to help them fulfill their fiduciary responsibilities. And finally, although ESG products, or sustainable funds, are not all alike in terms of their sustainability or financial approaches, they share the common objectives of competitive returns while considering the broader impact on people and planet.