7 ESG Investment Strategies


Investing with consideration for environmental, social, and governance (ESG) issues can be approached through various strategies. Here are seven ESG investment strategies for your consideration:


Strategy 1: Negative ScreeningThis method involves excluding specific companies or sectors from a fund or portfolio based on predefined criteria. Examples include businesses that violate ethical standards, such as those involved in tobacco, gambling, the arms trade, forced labor, or those that have significant negative impacts on the environment and society, such as high carbon emissions. Companies with low ESG performance compared to their industry peers are also excluded.


 Strategy 2: Best-In-Class Screening This strategy selects companies that perform exceptionally well compared to their industry peers. Specific ESG criteria are set for screening, such as investing in the top 10 clothing companies with the lowest greenhouse gas emissions.


Strategy 3: Portfolio TiltThis approach gives more weight to assets with high ESG scores while maintaining industry weight ratios close to the target index. For example, when investing in the Russell 3000 index, this method involves investing in all companies within the index but allocating more funds to those with higher ESG scores.ำ


Strategy 4: ESG IntegrationInstead of excluding or selecting the best companies, this strategy incorporates ESG issues into the investment process. The belief is that investing in companies with high ESG scores will enhance the potential returns of the investment portfolio.




Strategy 5: Shareholder ActionThis involves participating or exercising power as a shareholder to support important ESG-related initiatives within the companies invested in, thereby finding opportunities through ESG.


Strategy 6: Activist InvestingThis proactive approach involves buying shares to influence company operations, persuading companies to adopt ESG initiatives.


Strategy 7: Sustainability-Themed InvestingThis strategy focuses on investing according to ESG themes rather than selecting specific companies or industries. It is similar to positive screening but emphasizes broader sustainability themes.


It’s important to note that you don’t have to choose just one strategy; a combination of strategies can be used. For example, SCB CIO currently employs Negative Screening, ESG Integration, and Sustainability-Themed Investing. We clearly specify the types of businesses we will not invest in, integrate ESG issues into every investment process, and increase opportunities by investing in sustainability-related themes such as clean energy and electric vehicles.


If you invest through mutual funds and want to incorporate ESG issues, consider the policies of the asset management company (AMC) offering the mutual fund. Review the strategies they use for selecting investment securities and how they consider ESG issues. The mutual fund’s prospectus should outline these principles, helping you determine if their approach aligns with your ESG considerations.

 

Source :

·   https://online.hbs.edu/blo/post/esg-investment-strategies 

·   https://www.unpri.org/introductory-guides-to-responsible-investment/an-introduction-to-responsible-investment-screening/5834.article 


Important:

· Investment involves risks. Investors should understand the nature of the product, return conditions, and risks, and seek additional advice from business operators before making an investment decision.

· For more information, please contact the SCB Call Center at 02-777-7777.


 January 22, 2024 


 By Sornchai Suneta, CFA   SCB Wealth Chief Investment Officer First Executive Vice President & Head of Investment Office and Product Function Siam Commercial Bank Public Company Limited