Environmental, social, and governance (ESG) criteria are a set of standards to ensure a company’s operations that are socially responsible and cover many different factors.
Environmental impact is perhaps the most obvious and talked about factor. It covers fossil fuels, single-use plastic, palm oil plantations and the many other activities that threaten our climate and ecosystems.
Social responsibility addresses considerations such as the opioid crisis, gambling addiction, gender discrimination and human rights abuses.
Governance standards consider the systems in place to manage cyber security, accuracy of reported accounts, gender diversity on boards, executive pay and many other indicators of how well a company is being run.
How can fund managers influence these issues when deciding how to invest our money?
The most obvious way is to avoid investing in companies with poor ESG performance, but there are other tools at their disposal. As shareholders in a company, they can and do vote on resolutions at Annual General Meetings and require the company’s management to meet them to discuss corrective actions. In the last few years, the ‘E’ in ESG has taken on a more positive slant too. Many fund managers now seek out companies whose activities will have a positive environmental impact, such as renewable energy and new approaches to water management.
The Trustee is continuing to consider how best to further incorporate the principles of ESG within the Funds investment strategy.