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

Responsible Investing serves as a 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, introducing the reader to the rapidly evolving field of responsible investing. Building on the first edition, this second edition provides updates where appropriate, as well as new emphasis on the development of standards in terminology and metrics. Opening with the background of ESG investing, the book discusses the development of ESG risks and provides an overview of ESG rating systems. It outlines the current position of ESG investing in portfolio management through granular analysis, offers insight into common investor concerns about ESG investments, presents qualitative theories, and reviews literature modeling ESG investment performance. Finally, the authors provide readers with a foundation on the development of financial models measuring risk and return, which can be used to evaluate the performance of ESG investments. This edition features updated statistics and a new chapter on regulation, reporting, and taxonomy in ESG investing, as well as new international case studies. Following a summary approach, Responsible Investing is a valuable textbook, providing a context in which upper-level students of ESG investment and sustainable finance can specialize. Cover 1 Half Title 2 Title 4 Copyright 5 Contents 6 List of figures 10 List of tables 12 About the authors 14 Contributors 16 Preface 18 Acknowledgments 20 Chapter rubrics 22 1 Introduction 28 1.1 Assumptions for this textbook 28 1.2 Terminology 29 1.3 Useful features for students 30 Discussion questions 30 2 A historical survey of ESG investing 31 2.1 Progression of investing theories: neoclassical economics encounters human nature 31 2.2 Socially responsible investing’s historical beginnings: religious and corporate development (1800s–1950s) 32 2.3 Development era: key milestones in the development of SRI investing (1950s–1990s) 35 Case study 2A Pilgrims Fund Board 36 2.4 The modern era: 1990s–today 39 Learning perspective 1 Handprinting: driving positive impacts 44 Discussion questions 53 3 Common methods for incorporating ESG investments into portfolio management 57 3.1 Exclusion-based ESG investing 57 3.2 Integration-based ESG investing 59 Case study 3A ESG integration at J.P. Morgan Asset Management 61 3.3 Impact-based ESG investing 68 3.4 Engagement-based ESG investing 69 Case study 3B Defining engagement – Federated Hermes 70 Learning perspective 2 ESG proxy voting 78 Discussion questions 91 4 The development of ESG risk and the ESG rating system 93 4.1 Introduction to ESG risks 93 4.2 Policy risk 93 4.3 Headline risk 95 4.4 Performance risk 96 4.5 Introduction to risk premia 96 4.6 ESG identification and the ESG rating system 99 Case study 4A MSCI ESG ratings 100 Case study 4B Sustainalytics 101 4.7 The impact of ESG risk on portfolio management 105 Learning perspective 3 How ESG indexes facilitate the evolution of finance 107 Discussion questions 118 5 Regulation, reporting, and taxonomy in ESG investing 122 5.1 Necessity of precise responsible investing terminology 122 Case study 5A Sustainable Development Goals 127 Case study 5B Mexico SDG-linked bond 130 5.2 Evolution of responsible investing terminology 131 5.3 ESG-related regulation 134 Case study 5C EU Sustainable Financial Disclosure Regulation 135 5.4 Developments in ESG-related data and reporting 136 Discussion questions 137 6 The impact of common investment theories on ESG investment trends 139 6.1 Shareholder theory vs. stakeholder theory 140 Case study 6A Dodge v. Ford Motor Co. (judicial foundation for shareholder theory) 141 6.2 Material information vs. non-material information 144 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 144 6.3 Resource-based view vs. Porter’s five forces model 146 6.4 Universal owner theory 148 Discussion questions 148 7 The current role of ESG investing in portfolio management 150 7.1 ESG investing in developed markets 153 Case study 7A Breckinridge Capital Advisors 156 7.2 ESG investing in emerging markets 160 Case study 7B Hot topic: fossil fuel-free (FFF) investment 161 Case study 7C SRI investing within hedge funds 162 Discussion questions 168 8 Common investor concerns regarding ESG investment strategies 170 8.1 Return concerns 171 Case study 8A Passively customized ESG indices by Aperio (BlackRock) 172 8.2 Policy concerns 178 8.3 Information concerns 178 Case study 8B Customized responsible investment policies to evaluate investment products – a case study from Germany 179 8.4 Regional concerns 187 Learning perspective 4 Sustainability and financial performance 188 Discussion questions 195 9 Commonly held ESG views and practical considerations 201 9.1 Qualitative vs. quantitative models 202 9.2 Environmentally focused investing 203 9.3 Socially focused investing 207 9.4 Governance-focused investing 208 Learning perspective 5 The future of capitalism is feminine 212 Discussion questions 219 10 Methods for modeling risk and return for traditional investments 223 10.1 Fundamental analysis 224 Case study 10A Integrating ESG in DCF valuation: AllianceBernstein’s Global Core Equity 225 10.2 Quantitative analysis 229 10.3 Development of common method of risk and return 233 Discussion questions 236 Index 238 responsible,investments;,ESG,funds;,green,finance;,portfolio,management;,investment,performance;,greenwashing;,ESG,investment;,sustainable,finance;,investment,management;,impact,investing;,ESG,investing;,social,finance responsible investments,ESG funds,green finance,portfolio management,investment performance,greenwashing,ESG investment,sustainable finance,investment management,impact investing,ESG investing,social finance "Responsible Investing is a 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, introducing the reader to the rapidly evolving field of responsible investing. Building from the first volume, this second edition provides new updates where appropriate as well as new emphasis on the development of standards in terminology and metrics. Opening with the background of ESG investing, the book discusses the development of ESG risks and provides an overview of ESG rating systems. It outlines the current position of ESG investing in portfolio management through granular analysis, provides insight into common investor concerns about ESG investments, presents qualitative theories, and reviews literature modelling ESG investment performance. Finally, the authors provide readers with a foundation on the development of financial models measuring risk and return, which can be used to evaluate the performance of ESG investments. This new edition offers updated statistics and a new chapter on regulation, reporting and taxonomy in ESG investing, as well as new international case studies. Following a summary approach, Responsible Investing is a valuable textbook which provides a context in which upper-level students of ESG investment and sustainable finance can specialise"-- Provided by publisher