LOS H requires us to:
describe how environmental, social, and governance (ESG) considerations may be integrated into portfolio planning and construction
a. ESG is the acronym for Environmental, Social, and (Corporate) Governance, the three broad categories, or areas, of interest for what is termed “socially responsible investors.”
b. ESG is a practice of considering all of these factors in the investment process. And these factors are considered across all the asset classes, including equity, fixed income, and alternative investment.
c. ESG issues can basically be classified into:
i. Environmental Issues. These include issues such as climate changes, global warming, resource depletion, deforestation, pollution, etc.
ii. Social Issues. These include issues such as gender equality, human rights, customer and investor satisfaction, labor standards, etc.
iii. Governance Issues. These include issues such as ease of doing business in the location, corruption levels, human resources, etc.
Investors can, apart from the economic aspects, look for these factors and whether the companies are maintaining a decent standard with respect to the same.