ESG means using environmental, social and governance factors to assess investment opportunities. It may also be referred to as impact or socially responsible investing. As part of the European Union ‘Action plan: Financing sustainable growth’, draft regulations have been published on how investment firms should take sustainability issues into account when providing advice or portfolio management services.
The concept of sustainable investment includes the belief that using ESG principles in selecting sustainable investment opportunities can lead to better performance due to good management of risk over contentious issues. For example, companies with a lower carbon footprint face less regulatory risk so its shares should be less volatile over time.
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