We thank all of those at UN PRI who reviewed this piece as well as those at AQR Capital Management, with special thanks to Nicole Carter for her contributions. Learn more about AQR's ESG initiatives.
Over the last several years, Responsible Investment 1 1 Close Responsible Investment is inclusive here of all its aliases, for example Sustainable Investment (Sl), Socially Responsible Investing (SRI), or Environmental, Social and Governance (ESG) Investing. has gained prominence among institutional investors and indeed the broader investment industry. Asset owners have made this topic more central to investment decisions as they are increasingly concerned with both their fiduciary responsibility to deliver financial results and non-financial impact on their constituents and the broader global community.
Buoyed by this prioritization, Environmental, Social and Governance (ESG) investing is now a frequent area of focus within traditional investment strategies and is a rapidly growing new product category in and of itself. At present, ESG adoption varies by region, but research by Greenwich Associates found that, of global investors not yet incorporating ESG, nearly three-fourths are considering incorporating it into their investment portfolios. 2 2 Close Greenwich Associates, 2018: ESG Investing: The Global Phenomenon (summary, methodology, and report downloadable here).
Responsible Investing's reach is vast. However, so too is confusion around the meaning of the concept. This is unsurprising, given the many different motives for and approaches to considering ESG factors and many different opinions about exactly what they include.
We therefore seek to “clear the air,” providing a framework of the various approaches and terms necessary to have an informed discussion and investment policy on Responsible Investment.