Title Page
Copyright Page
Table of Contents
Introduction
About This Book
Foolish Assumptions
Icons Used in This Book
Beyond the Book
Where to Go from Here
Part 1 Getting to Know ESG
Chapter 1 Entering the World of ESG Investing
Surveying the Current ESG Landscape
Exploring What ESG Is (and Isn’t)
Defining the breadth of ESG
Comparing SRI, ethical, and impact investing to ESG
Determining whether ESG delivers good investment performance
Understanding ESG’s Impact on the Environment, Society, and Governance
Meeting environmental and global warming targets
Providing solutions to social challenges
Meeting corporate governance requirements
Using International Standards to Determine ESG Objectives
Leading the charge: European legislation on ESG
Ahead of its time: The United Nations
Staying focused: The Sustainability Accounting Standards Board
Building a framework: The Global Reporting Initiative
Chapter 2 Back to the Future: Understanding the Evolution and Growth of ESG Investing
Studying the Evolution of Investing in ESG
Investing through the ages: From SRI to ESG
Go green: The changing global environment
On trend: Changing investor demographics
Crunch the numbers: Evolving data and analytics
Exploring the “Personality” of an ESG Company
Determining material ESG factors
Performing a materiality analysis
Applying weights to materiality measures
Understanding Why ESG Is Important
Global sustainability challenges
The interest of millennial investors in ESG
More systematic, quantitative, objective, and financially relevant approaches
Surveying Specific ESG Ratings and Metrics
Data quality, ratings bias, and standardization
Issues with ESG scoring
ESG momentum importance
Applying artificial intelligence and data science to ESG analysis
Defining an ESG Policy
Familiarize yourself with ESG and asset owner–specific legislation
Undertake a peer review
Review your statement of investment beliefs and core investment principles
Specify responsible investment guidelines
Outline responsible investment procedures
Include engagement and active ownership approaches
Spell out reporting requirements
Chapter 3 Give Me an ‘E’! Defining the Environmental Sector in ESG
Outlining a Company’s Use of Natural Resources
CO2 or GHG? Climate change and carbon emissions
Clean and green: Energy efficiency
A crisis awaits: Conservation of water
There is no Planet B: Air and water pollution
Live and let live: Biodiversity
See the forest for the trees: Deforestation
Don’t throw your future away: Waste management
Studying the Effects of a Company’s Operations on the Environment
Direct operations
Supply chains
Defining “Green” for a Company
Internalizing (or managing) externalities
The 3Rs: Reduce, reuse, and recycle
Detailing a Company’s Performance as a Steward of the Physical Environment
Managing operations to reduce emissions and promote sustainability
Collaborating with others to create solutions for environmental issues
Chapter 4 Give Me an ‘S’! Investigating the Social Aspects of ESG
Identifying Factors in a Company’s Social Performance
Customer satisfaction
Data protection and privacy
Gender and diversity
Employee engagement
Community relations
Human rights
Labor standards
Evaluating a Company’s Social Performance
The results are in: Achievements
When in Rome: Differentiating on a national or regional basis
Determining Measurements for Social Performance
The alignment of social and economic responsibilities
Long-term change for people and communities
Deciding on Weight Factors
Take your pick: Different social issues
Think outside the box: Scenario analysis
Chapter 5 Give Me a ‘G’! Decoding the Governance Component of ESG
The Good Place: Defining What “Good” Corporate Governance Looks Like
The benefits of good governance
Practices and values
Multiple stakeholder orientation
Walk the Walk: Evaluating a Company’s Governance Values
Board responsibilities
Board composition
Audit committee structure
Bribery and corruption
Executive compensation
Lobbying
Political contributions
Whistleblower schemes
Lead the Way: Emphasizing How ‘G’ Can Dictate the ‘E’ and ‘S’ Factors
Governance as an overarching principle for ESG
The role of governments
Around the World: Underlining Regional Differences in Governance Activities
Emerging markets
North America
Europe
Chapter 6 Highlighting Corporate Greenwashing
The Grass Isn’t Always Greener: The Basics of Greenwashing
Tracking the growth of greenwashing
Specifying the details
Using plain language
Setting up a system
Just When You Thought It Was Safe: Coronawashing
Coronawashing on the corporate side
Coronawashing on the investor side
Part 2 Investing in ESG through Different Instruments
Chapter 7 Approaches to ESG Investing
Understanding Socially Responsible Investing
Looking at reasons for SRI
Comparing a best-in-class strategy to an exclusion strategy
Weighing the potential return on SRI decisions
Evaluating Impact Investing
Defining and tracking “impact”
Measuring social and environmental outcome targets
Calculating impact metrics
Focusing on Faith-Based Investing
Reviewing religious principles of finance
Examining exclusion screening and divesting
Advocating for values through proxy voting
Chapter 8 Analyzing Equity-Based Instruments
Integrating ESG Strategies into Investment Decisions
Just the basics: Getting an overview of the process
Using active strategies
Analyzing the impact of different ESG scores
Watch out: Thinking about risks and disclosures
Investigating how companies with higher ESG scores outperform
Take it easy: Applying passive strategies
Reviewing relative returns and performance of ESG stocks
Verifying Quantitative Strategies
Constructing equity portfolios that integrate ESG factors
Adjusting stock index constituent weights
Determining which ESG factors matter most in quantitative strategies
Identifying Smart Beta Strategies
Extending negative stock screening to smart beta strategies
Using ESG equity factors and scores to weight portfolio construction
Focusing on a Given Theme
Sector exposure
Thematic exposure
Chapter 9 ESG and Fixed Income Instruments
Analyzing Fixed Income (Bond) Factors
The importance of risk
Strategies for adding ESG to fixed income portfolios
Bond issuer goals
Defraying interest rate costs
All together now: ESG integration issues
Bond pricing
Mix it up: Credit and ESG ratings
Emphasizing Bond Issuer Differences
For king and country: Sovereign issuance
Corporate issuance
Room for more: Emerging markets
Highlighting Fixed Income Indexes
Identifying Specific ESG Exposures
For the earth: Green bonds
Think big: Social bonds
Keep it up: Sustainability and sustainability-linked bonds
Chapter 10 Exploring Derivative and Alternative Instruments
Achieving Passive Returns Using ESG Indexes
The basics of exchange-traded products
OTC derivatives
Building blocks: Structured products
Increasing Focus on ESG in Alternative Assets
Sustainable lending
ESG in hedge funds
Focusing on Illiquid Assets
Around the block: Real estate
Laying foundations: Infrastructure
Hush-hush: Private equity
Investing in “Traditional” ESG
Pull the plug: The basics of renewable energy investment
Light my fire: Solar power
There she blows: Wind power
Chapter 11 Highlighting Geographical Differences in ESG Investing
The Beginning: Europe
Highlighting the regulatory developments
Enjoying a first mover advantage on ESG investment
Continuing inflows for ESG funds
The Middle: North America
Highlighting political and regulatory roadblocks in the United States
Investigating Canada’s approach
Driving up demand
The End: Developed versus Emerging Markets
Seeing that emerging markets are lagging but disclosure is increasing
Highlighting political and regulatory developments
Determining whether an ESG approach is better suited to developed economies
Part 3 Applying ESG Philosophy
Chapter 12 Creating Value through ESG for Corporations
Crystal Clear: Corporate Disclosure and Transparency
Meet the team: ESG engagement
Thank you for sharing: Communication from the board
Grow the Pie: Generating Enhanced Returns
Increasing access to capital
Corporate adoption and action
Roll Up, Roll Up: Attracting More Customers
Tracking sustainability practices
Measuring intangible value drivers
Identifying material opportunities
Pare It Back: Reducing Costs
Green financing
How low can you go? Lower interest rates and higher credit ratings
The Bottom Line: Increasing Productivity and Attracting Talent
Chapter 13 Devising an ESG Policy
Here’s a Great Idea: Creating a Plan
Promoting ESG among key stakeholders
Creating an internal governance structure
Don’t Reinvent the Wheel: Undertaking a Peer Review
Devising ESG investment strategies
Identifying, assessing, and selecting ESG investments
Go Over It: Reviewing Your Core Investment Principles
Familiarizing Yourself with ESG-Specific Regulations
Comparing Europe and the United States
Taking into account sustainability-related risks
Doing effective due diligence on ESG greenwashing
Surveying Reporting Requirements
Essential characteristics of ESG data
Material factors for investors
Examining ESG Engagement
Conducting constructive dialogue on managing ESG risks
Seizing business opportunities associated with sustainability challenges
Chapter 14 Defining and Measuring ESG Performance and Reporting
Defining Criteria and Metrics
Follow the rules: Looking at regulators’ work
The devil is in the details: Analyzing corporate sustainability reports
Walk the walk: Committing to corporate social responsibility practices
Show me the money: Identifying investment performance
Calculating Relative ESG Performance
Against the broader market
Against specific benchmarks
Getting a Handle on Ratings and Rankings
Securities
Portfolios
Not the sharpest tool: Smart beta
Developing Frameworks for Reporting
In your view: ESG objectives
Play by the rules: ESG compliance
Meet the players: Comparing different frameworks
Chapter 15 Elaborating the ESG Endgame
Highlighting the Evolution of ESG from Niche to Mainstream Strategy
Achieving competitive financial returns with positive ESG impact
Emphasizing the need for common terminology
Watching the Growing Use and Acceptance of ESG Standards
Digging into disclosures
Providing data consistency
Developing national and international financial reporting standards
Looking at the Increasing Impact of ESG Ratings and Rankings
Qualitative decisions
Quantitative decisions
Improving Education
What do investors believe is important?
What should a company know about its ESG rating?
Part 4 The Part of Tens
Chapter 16 Ten Frequently Asked Questions for an ESG Approach
What Is ESG Investing?
Which Sustainability Goals Should Be Followed?
What Are the Characteristics of an ESG Company?
How Is an ESG Company Rated?
What Investing Principles Should Be Adopted for ESG?
What Is Stewardship?
How Is an ESG Approach for Asset Owners Implemented?
How Are Benchmarks and Performance Measurement Incorporated in ESG?
What’s the Latest on Disclosures and Reporting?
What’s the Future of ESG Investing?
Chapter 17 Ten Issues Surrounding ESG Portfolio Construction
Reasons for Varying ESG Scores between Rating Agencies
Criteria Used in Creating a Combined ESG Score
Trends Driving ESG Materiality
Quantitative Approaches to ESG Analysis
Qualitative Analysis: Verifying and Supplementing Quantitative Analysis
ESG Regulations
Risk and Reward
Derivative and Alternative Instruments
Stranded Assets
Sustainable Investing
Chapter 18 Ten Factors Influencing the Growth of ESG Investing
Climate Change: The Route to Net Zero
Environmental and Social Issues Coming to the Fore
Stewardship as a Driver for Change
ESG Disclosures
Accounting
Regulation and International Standards
Impact Investing: Actively Do Good versus “Do No Harm”
Data and Technology
Consolidation of the ESG Ratings Companies
Political Impacts: Geopolitics and Public Pressure
Appendix Great Resources for ESG Investing
Index
EULA