Sustainable Investment Strategies and a New Type of Responsibility for Asset Managers

Sustainable investment strategies vary widely. They can include simple exclusion or inclusion criteria based on company activities as well as Impact Investing that aims for a normal market return while also creating a positive effect on the environment or society. ESG Integration considers ESG risks and opportunities along with traditional risk and return expectations.

The list below is not complete. However, it provides a good overview of sustainable investment strategies for asset managers.

Negative screening means not investing in companies that harm society or the environment. It also includes companies with poor corporate governance.

Asset managers take into account the exclusion criteria that asset owners have specified. These criteria can be based on specific ESG topics such as climate change, human rights violations, or corruption; likewise, they may be based on ESG factors such as a company’s ESG rating or its involvement in controversial sectors such as tobacco or firearms. Companies that meet the criteria are excluded from the investment portfolio.

Negative Screening aligns the asset owner’s values with their investments. It can also serve as a tool for managing risk.

Positive screening allows investors to put money into companies that help society and the environment. These companies and show good corporate governance.

The asset manager selects the investment targets based on the predefined inclusion criteria set by the asset owner. These criteria can focus on specific ESG topics like renewable energy, social justice, or diversity in leadership. They can also consider general ESG factors, such as a company’s ESG rating or its commitment to sustainability.  Companies that meet the criteria are included in the investment portfolio.

Positive Screening aligns the investor’s values with their investments. It can also help find companies that may perform better in the long run because they focus on sustainability.

Impact Investing is different from the strategies mentioned earlier. Instead of focusing on companies with negative ESG risks, it aims to invest in companies and projects that try to create a sustainable future for society and the environment. This can include, for example, reductions in carbon emissions, fostering gender equality, or improving access to clean drinking water.

Asset owners have many options for responsible investments. They can choose from different asset classes like investment funds, ETFs, and direct investments.

ESG Integration is a popular investment strategy for asset owners who think that sustainable companies will succeed in the long run. They believe these companies will provide higher returns. This strategy clearly differs from Impact Investing.

ESG considerations are an important part of the traditional analysis and investment process. This is different from Negative and Positive Screening, which define specific requirements. ESG criteria are regarded as an additional factor for financial return. The investment decision is accordingly based on a quantitative and qualitative analysis of ESG data. 

Asset managers must make investment decisions that match the values, risk profile, and sustainability goals of the asset owner.

The investment strategy asset managers choose will affect the analyses needed, the type of reports, and the data required. It is important for asset managers to be clear with the asset owner about the chosen investment strategy.

Transparency is everything. Particularly in the case of complex sustainable investment strategies, asset managers must provide and explain detailed qualitative and quantitative information. This also helps in refuting any allegations of greenwashing.

Responsible asset management needs clear reporting. This helps clients understand the ESG goals and the sustainable investment strategy. It also shows the sustainability risks that have been reduced and any positive effects that have been achieved.

Responsible asset owners can contribute greatly in this regard. They can help put a sustainable investment strategy into action. They can do this by asking for detailed information and key figures. They should also ask specific questions about the sustainability of a portfolio or investment product.