Understanding ESG Integration Framework – Three investment strategies pertain most specifically to ESG-related factors. Of the three, ESG Integration is least involved with integrating environmental, social, and governance efforts that support the investment decision. At least one ESG factor must be included for the investment strategy to be classified under ESG Integration.
While focusing on one issue is essential, not all ESG factors must be considered, and the reasons for the investment do not have to remain for sustainability. There is no current framework for ESG Integration strategy to operate under other than the knowledge that funds and investors have the power to define what ESG involvement means for their investments. Unfortunately, this freedom is a hindrance to structuring ESG Integration successfully because there is no way to ensure that research and implementation by the company back the sustainability claims.
Understanding the ESG Framework is difficult as more must be made clear by definition. How heavily involved a business chooses to be regarding the ESG factor(s) focused on is not carefully monitored, adding to the list of shortcomings surrounding ESG Integration. More clarity is needed in definition before investors can genuinely carry out the ESG integration frameworks without reason to question or suggest that there may be conflicting information about the honesty of the investment.
How ESG Integration Works
ESG integration framework is only interested in ESG factors on a minor level. Typically, one or two ESG areas of focus are determined, and they are interpreted by fund managers against other factors that may be non-ESG. From there, fund managers decide whether investing would be both sustainable and good for business. If the latter is not the case, they may pass on the investment.
ESG Integration Framework And Sustainability
Both ESG and sustainability are not clearly defined, which is, in part, some of the reason why these terms are sometimes used interchangeably. For the most part, one can consider ESG integration framework as a type of sustainable investment strategy whereby one or more ESG-related factors are considered to form insights about particular investment decisions. Sustainability may not include ESG factors and may look at the overall picture of how sustainable a certain business investment is by weighing the degree of benefit to harm that the business and its actions create for society and the planet.
While proposals have been put in place to define what the ESG integration framework entails, it is understood that it provides funds with a way to consider their options based on what they value most. In other words, prioritizing sustainability on a socio environmental level may not be the end goal. Still, if the shoe fits, the business may choose to implement sustainable investments that meet their ideals if they serve the investors in some significant way.
Prioritize ESG Factors To Implement The Framework
Clarity surrounding the ESG integration framework is urgently needed. In the meantime, ethical investors can prioritize ESG factors to help create a general roadmap for what they’re looking for in an investment and find companies to take on.