A Complete Guide To ESG Integration Framework and Ethical Investing

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Written By Charlotte Miller

Environmental, social, and governance (ESG) integration is the act of incorporating ESG features into an investment portfolio. This is designed to help improve risk-adjusted returns regardless of the project’s ability to return profits. The goal is to enhance societal needs like keeping the environment clean. With ESG integration, there is no one-size-fits-all approach. This applies to all portfolio managers’ research, insights, and data. Teams should work together to identify all potential process enhancements across their investment portfolio.

To enlighten you on ESG integration, this guide discusses some crucial aspects you need to know about the framework and ethical investing. 

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What Is an ESG Integration Framework? 

The ESG integration framework is a wholesome approach aimed at improving societal needs and returning profits. The “E” in ESG refers to the company’s environmental practices and impact. This includes waste management, energy consumption, use of natural resources, and carbon emissions. All these factors must be incorporated into the ESG integration framework. 

The “S” refers to the company’s social impact on its employees and other involved parties. It also refers to the company’s overall effects on the larger community. The social factor covers working conditions, labor practices, inclusiveness, diversity, employee engagement, pay equity, data privacy, and protection. 

Lastly, the G stands for governance in an organization. It could also refer to a company’s internal procedures and controls to ensure transparency and integrity in its decisions and activities. Some issues under governance include executive compensation, boardroom diversity, whistleblowing, and anti-corruption. 

Together, E, S, and G encourage more social and ethical responsibility in boardrooms, businesses, and investor communities. A company will have a reliable ESG integration framework when it incorporates all these values. Experts define ESG integration as the systematic and explicit inclusion of ESG issues in investment decisions and analysis. gobyinc.com 

From a different point of view, ESG integration could be the analysis of all material factors in investment decisions and investment analysis. All decisions should adhere to social, ethical, and governance principles.

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Understanding Ethical Investing

Ethical investing is a crucial part of the ESG integration framework. It refers to the act of using an individual’s ethical principles as the primary filter for the selection of investing. Generally, ethical investing depends on the views of an investor. Even though some people use ethical and socially conscious investing interchangeably, they are two different entities. Socially conscious funds typically have one overarching set of rules to determine a portfolio. 

On the other hand, ethical investing brings about a more personalized result. With ethical investing, an individual has the power to allocate funds towards companies whose values and activities align with their personal beliefs. Some beliefs might be rooted in political, religious, or environmental precepts. Besides, some investors might avoid investing in companies because they don’t align with their principles. The goal is to work with companies or businesses that meet ethical guidelines.

Ethical Investing and ESG Integration Could Be Beneficial

Even though ethical investing and ESG integration are primarily based on values and principles, they could benefit a company. Integrating these values into a business will enable work towards improving societal standards.