Impact ESG investing can be channeled and measured through `do no harm’ and global sustainable development goals.
Impact investing is investment made into companies, organizations, and funds with the intention to generate a double bottom line with positive social and/or environmental impact alongside a financial return. While true environmental, social and governance (ESG) impact investing can be a discipline in itself, you can take some steps right now. Here are some ways to be impactful with your asset allocation.
A Good Place to Start: Do No Harm
For investors looking to take steps towards impactful investing, a good place to start is with the concept of doing no harm — a baseline for investors to look at their portfolio and remove any exposures that might have a negative ESG impact.
With this approach, consider whether companies in which you invest are applying efforts to minimize negative externalities of their operations and ensure that, ultimately, the net impact of their operations is not negative.
For a company to do no harm, the management and board need to put substantial effort into enhancing various measurement and control systems (for carbon emissions, resource consumption, waste production, etc.). Further efforts would be needed for raising awareness and focus throughout the organization. It would involve developing policies and mitigation strategies, setting performance targets and linking the incentives to their achievements. They will also need to apply such impact management across the whole value chain including supplies, production, distribution, consumption and utilization their products.
We believe the simplest way to quantify such do-no-harm efforts is through ESG scores or ratings. Broad ESG best-in-class equity indices, based on the ESG scores, such as MSCI ESG Leaders, FTSE4Good, STOXX Global ESG Leaders and Dow Jones Sustainability Index, serve as the closest proxies for minimizing ESG related negative externalities.