Five Steps to Become an E-S-Genius

Lots of recent articles talk about the benefits of using ESG data to invest. But what does that mean in a practical sense? How does ESG help make better investment decisions? Whether your aim is sustainable investing or increased returns (or the sweet, sweet overlap of both), here are five resources to get you started.

1. Overview

According to Investopedia, “The Environmental, Social And Governance (ESG) Criteria is a set of standards for a company’s operations that socially conscious investors use to screen investments.” While that’s true, ESG data has uses well beyond determining socially conscious value (see #2). The rest of the Investopedia entry does a great job expanding on the building blocks of ESG; for extra credit, explore some Related Terms (including socially responsible investment – SRI and impact investing).

2. Why ESG Matters

OWL ESG also sees ESG as an essential part of the investor’s toolkit. Good ESG data includes multiple sources of information, from voluntary disclosures to public record to industry reportage. Referenced on an individual level, it can help shine light on the policies and practices of a company; from a higher viewpoint, it can provide helpful insight into a particular industry, including a company’s behavior relative to its peers and competitors.

By its nature, ESG can help investors invest with conscience, and it can also contribute to better short-, medium-, and long-term decisions. While due diligence would never rely on ESG data alone, the information combines well with other standard performance metrics to create a broad and very useful perspective on a potential investment. Check out some of our other posts on ESG to learn more.

3. The Deep Dive

The CFA Institute has created a great set of resources for learning about ESG, including the ESG-100, a “clear and simple introduction to Environmental, Social, and Governance issues in Sustainable, Responsible, and Impact Investing through 100 questions and answers.” While that may sound dry, the experience is an engaging way to absorb a lot of practical knowledge in a short space of time. Budget an hour if you’ve already done some ESG homework; budget two or more if you’re using the quiz as a learning or research tool. Besides presenting a well-rounded picture of ESG and its uses, it’s a great source for additional reading.

4. Interactive Adventures in Materiality

SASB’s Materiality Map “identifies likely material sustainability issues on an industry-by-industry basis.” A clickable chart cross-references issues against sectors to display relevant information and accounting metrics. If you haven’t already, you’ll need to sign up for a free account to use this and the next SASB resource.

5. Serious Business

SASB’s Standards Navigator will let you delve into the DNA of SASB’s key issues to understand how each issue breaks down. Standards organizations like SASB or GRI are the headwaters for how ESG is measured at the business end; their analysis of issues and indicators can help a serious investor understand the real world implications of an ESG score.

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