Sustainable investing approaches

- [Instructor] According to UNPRI, both positive and negative screening utilize a set of filters to determine which companies or sectors are eligible or ineligible for investment in a particular portfolio. This criteria might be set according to an investor's values and ethics or simple preferences or based on the policy of an asset manager or owner. A screen might be used to exclude the highest greenhouse gas emitters from a portfolio, which is negative screening or to target only the lowest emitters, positive screening. Positive screening focuses on best-in-class companies or investments. Screening is one of the most widely used approaches responsible investment policy. ESG integration refers to systemic inclusion of ESG factors in investment decisions with the goal of better management of risks and improvement of returns. For BlackRock, the largest investment management firm in the world, ESG integration is the practice of incorporating ESG data, research and insights into investment decisions to enhance risk-adjusted returns. This is used regardless of whether an investment strategy has a sustainable mandate. Lowering risk while generating returns is a key component of ESG integration. Analyzing ESG factors is a way of identifying and avoiding risk in a company or a sector. Those with ESG integration approaches also use ESG data to look for investment opportunities. For example, they might analyze the automotive industry and observe how different companies are adapting to trends in electrification, and factor this into revenue forecasts. Materiality is a key component of ESG integration. Investment managers assess the material issues for a particular sector, those that are considered very likely to impact overall corporate and investment performance. Thematic investing refers to the investment in specific solutions to ESG-related issues. For example, an investor could target solutions for renewable energy and focus their investments on solar and wind power technologies. Investors using a thematic investing approach will identify a particular ESG-related area, such as solar energy, carbon recapture, or internet accessibility and invest in companies that in that space. Unlike passive funds, active engagement-based sustainable investing approach provides investors with the opportunities to leverage their ownership to make an impact. These investors engage with the companies in which they are invested to understand their ESG strategies and impacts and encourage attention in ESG factors that they consider important. Impact investing involves a strategy to address specific ESG goals and generate financial return by investing in particular companies whose core operations address or attempt to solve a social or environmental challenge. Impact investors may invest in funds, projects or companies that might not have otherwise been funded. This strategy specifically targets companies and projects for their potential social, and environmental benefits. Social enterprises or companies that exist for the dual purpose of generating revenue and providing a social benefit, and environmentally related technology companies are often a target for impact investing.