Responsible Investing : An Introduction to Environmental, Social, and Governance Investments

This textbook provides the first holistic resource on Environmental, Social, and Governance (ESG) investing for undergraduate and graduate programs. It provides a thorough background and history of ESG investing, as well as cutting-edge industry developments, in a way that introduces the reader to the rapidly developing field of responsible investing. Beginning with a comprehensive background of ESG investing and the development of models measuring risk and return, the book then discusses the development of ESG risks, and provides an overview of ESG rating systems. The textbook also outlines the current position of ESG investing in portfolio management through granular analysis, provides insight into common investor concerns about ESG investments, discloses qualitative theories relevant to ESG investing, and reviews literature attempting to model ESG investment performance. Finally, the authors provide readers with a foundation on the development of financial models measuring risk and return, which will be useful for measuring the performance of ESG investments. With case studies from contributors around the world, this textbook is the first of its kind to truly provide a compelling blend of quantitative and qualitative analysis supporting the incorporation of ESG investment strategies into investment portfolios. Offering an excellent overview of the growing trends in ESG investing, as well as a close analysis of ESG theories and their practical application both today and in the future, this book will be a great resource for both undergraduates and graduate students. Cover Title Copyright Contents List of figures List of tables About the authors List of contributors Preface Acknowledgments 1 Introduction 1.1 Assumptions for this textbook Learning objectives 1.2 Terminology 1.3 Useful features for students Discussion questions 2 A historical survey of ESG investing Learning objectives 2.1 Progression of investing theories: neo-classical economics encounters human nature 2.2 Socially responsible investing’s historical beginnings: religious and corporate development (1800s–1950s) 2.3 Development era: key milestones in the development of SRI investing (1950s–1990s) Case study 2A: Pilgrims Fund Board 2.4 The modern era: 1990s–today Case study 2B: African Investing for Impact Barometer (2016) Learning perspective 1: handprinting: driving positive impacts Discussion questions 3 The development of ESG risk and the ESG rating system Learning objectives 3.1 Introduction to ESG risks 3.2 Policy risk Case study 3A: ATP Case study 3B: ESG risk for an institutional investor Case study 3C: gender equality and ESG investing: the Boston Common approach 3.3 Headline risk Case study 3D: Mercy Health and exclusion-based ESG investing 3.4 Performance risk 3.5 Introduction to risk premia 3.6 ESG identification and the ESG rating system Case study 3E: MSCI ESG ratings Case study 3F: Sustainalytics Case study 3G: Interfaith Center on Corporate Responsibility 3.7 The impact of ESG risk on portfolio management Case study 3H: Brunel Pension Partnership Discussion questions 4 Common methods for incorporating ESG investments into portfolio management Learning objectives 4.1 Exclusion-based ESG investing Case study 4A: Schroders Asset Management 4.2 Integration-based ESG investing Case study 4B: ESG integration at J.P. Morgan Asset Management 4.3 Impact-based ESG investing Case study 4C: impact investing at JANA Partners 4.4 Engagement-based ESG investing Case study 4D: Wellington Asset Management Case study 4E: CIEPP and engagement through proxy voting Learning perspective 2: ESG proxy voting Discussion questions 5 The current role of ESG investing in portfolio management Learning objectives Case study 5A: SASB 5.1 ESG investing in developed markets Case study 5B: Breckinridge Capital Advisors 5.2 ESG investing in emerging markets Case study 5C: hot topic: fossil fuel free (FFF) investment Case study 5D: SRI investing within hedge funds Learning perspective 3: MIT Sloan Discussion questions 6 The impact of common investment theories on ESG investment trends Learning objectives 6.1 Shareholder theory vs. stakeholder theory Case study 6A: Dodge v. Ford Motor Co. (Judicial Foundation for Shareholder Theory) 6.2 Material information vs. non-material information Case study 6B: Securities and Exchange Commission 17 CFR PARTS 211, 231 and 241 [Release Nos. 33–9106; 34–61469; FR-82] Commission guidance regarding disclosure related to climate change 6.3 Resource-based view vs. Porter’s five forces model 6.4 Universal owner theory Learning perspective 4: Sustainable Development Goals Discussion questions 7 Common investor concerns regarding ESG investment strategies Learning objectives 7.1 Return concerns Case study 7A: passively customized ESG indices by Aperio 7.2 Policy concerns Case study: 7B ESG investing – key trends and a roadmap for institutional implementation 7.3 Information concerns 7.4 Regional concerns Case study 7C: ESG integration in markets and asset classes Learning perspective 5: sustainability and financial performance Discussion questions 8 Commonly held ESG views and practical considerations Learning objectives 8.1 Qualitative vs. quantitative models 8.2 Environmentally focused investing Case study 8A: GreenFaith Case study 8B: KBI Global Investors Case study 8C: Varma Pension Plan 8.3 Socially focused investing 8.4 Governance-focused investing Learning perspective 6: the future of capitalism is feminine Discussion questions 9 Methods for modeling risk and return for traditional investments Learning objectives 9.1 Fundamental analysis Case study 9A: integrating ESG in DCF valuation: AllianceBernstein’s Global Core Equity 9.2 Quantitative analysis Case study 9B: eight oil, gas, and coal companies 9.3 Development of common method of risk and return Case study 9C: integrating ESG at Candriam Investors Group Learning perspective 7: ESG and investment risk Discussion questions Conclusion Index This textbook book provides the first holistic resource on Environmental, Social, and Governance (ESG) Investing for undergraduate and graduate programs. It provides a thorough background and history of ESG investing, as well as cutting-edge developments, in a way that introduces the reader to the rapidly developing field of responsible investing.