Environmental, Social, and Governance (ESG) Investing: A Balanced Analysis of the Theory and Practice of a Sustainable Portfolio

Description

Environmental, Social, and Governance (ESG) Investing: A Balanced Analysis of the Theory and Practice of a Sustainable Portfolio presents a balanced, thorough analysis of ESG factors as they are incorporated into the investment process. An estimated 25% of all new investments are in ESG funds, with a global total of $23 trillion and the U.S. accounting for almost $9 trillion. Many advocate the sustainability goals promoted by ESG, while others prefer to maximize returns and spend their earnings on social causes. The core problem facing those who want to promote sustainability goals is to define sustainability investing and measure its returns. This book examines theories and their practical implications, illuminating issues that other books leave in the shadows. Environmental, Social, and Governance (ESG) Investing Copyright Contents 1 Introduction Principles for responsible investing Sustainable development goals The scope of this book Chapter 2: ESG, SRI, and impact investing Chapter 3: Theories of the firm Chapter 4: Fiduciary duty in investment management Chapter 5: Overview of financial institutions Chapter 6: Financial markets: equities Chapter 7: Financial markets: bonds Chapter 8: Shareholder engagement Chapter 9: Defining and measuring ESG performance Chapter 10: ESG in managing institutional investor funds Chapter 11: ESG in managing college and university endowments Chapter 12: ESG in managing sovereign wealth and government sponsored funds Chapter 13: ESG in managing family foundations and family offices Chapter 14: Faith-based investing Chapter 15: ESG investing-organizations having direct impact Chapter 16: What’s next for ESG investing 2 ESG, SRI, and impact investing Environmental, social, and governance investing Socially responsible investment Divestment: South Africa Divestment: sin stocks Impact investing The Rise Fund Mission investing United Nations principles for responsible investing United Nations sustainable development goals Financial returns versus social and environmental returns Global sustainable investment 3 Theory of the firm The social responsibility of business is to increase its profits Maximize shareholder welfare, not market value Maximizing welfare Shareholder rights Summary Appendix 4 Fiduciary duty in investment management Addressing the Agency Problem Fiduciary duty Fiduciary obligations “Prudent Man” rule Uniform Prudent Investor Act Uniform Prudent Management of Institutional Funds Act Freshfields Report Fiduciary II United Nations Principles for Responsible Investing Organization for Economic Cooperation and Development Summary 5 Overview of financial institutions Information asymmetries, moral hazard, and adverse selection Commercial banks Credit unions Investment banks Trading and research Asset securitization Mergers and acquisitions Prime brokerage Central banks Conventional monetary tools Unconventional monetary policy Other central banks Shadow banking: other financial intermediaries Insurance companies Categories of insurance Prudential Financial Inc MetLife Inc Zurich Insurance Group Pension funds Largest pension funds CalPERS Florida State Board of Administration Asset managers Hedge funds Private equity 6 Financial markets: equities Risk, return, and diversification Capital asset pricing model Efficient market hypothesis Random walk Types of orders Equity trading venues Regulation Investing in equities Collective investment vehicles: mutual funds and exchange-traded funds Equity indexes ESG indexes MSCI FTSE Russell Morningstar Robo-advisors 7 Financial markets: bonds Future value and present value Internal rate of return Credit instruments Fisher’s law Term structure and yield curve Types of debt instruments: money market instruments Types of debt instruments: US Treasury securities Types of debt instruments: agency securities Types of debt instruments: corporate bonds Types of debt instruments: municipal securities Types of debt instruments: sovereign debt Fixed income trading Fixed income indexes and funds ESG bond funds ESG bond fund managers PIMCO Fidelity Green bonds Green bond indexes and ETFs 8 Shareholder engagement Using engagement to create value for both investors and companies Shareholder activism Shareholder voting by proxy Key corporate governance and shareholder voting trends Recent shareholder proposals Examples of shareholder engagement policies Blackrock CalPERS T. Rowe Price The New York City Comptroller’s Office Vanguard Institutional investors acting together The Investor Stewardship Group The 30% Club Sustainability Accounting Standards Board 9 Defining and measuring ESG performance ESG factors in portfolio construction Standards for companies to report their ESG impacts Global Reporting Initiative Sustainability Accounting Standards Board United Nations Global Compact The United Nations Guiding Principles Quality issues in ESG reporting Corporate ESG reporting: findings Services providing an assessment of corporate ESG Sustainalytics MSCI RepRisk ESG Business Intelligence Ceres JUST Capital How do mutual funds and ETFs rate ESG performance of portfolio companies? Morningstar Does ESG investing require lower returns? Conceptual critiques of ESG investing Empirical studies 10 ESG in managing institutional investor funds BlackRock Sustainable investment choices Fidelity PIMCO Goldman Sachs J.P. Morgan Betterment JUST Capital 11 ESG in managing college and university endowments Hampshire College Yale University University of California Brown University Harvard Columbia University ESG investing in other schools Organizations providing analysis, support, consulting, and investing services for endowment management Commonfund The Intentional Endowments Network National Association of College and University Business Officers The Forum for Sustainable and Responsible Investment 12 ESG in managing sovereign wealth and government sponsored funds Transparency issues and concerns Linaburg–Maduell Transparency Index ESG investing by SWFs ESG investing policy in selected sovereign wealth funds Norway’s Government Pension Fund-Global The French Pension Reserve Fund Temasek Holdings Private Limited China Investment Corporation New Zealand Superannuation Fund Future Fund, Australia’s Sovereign Wealth Fund Middle East Sovereign Wealth Funds Mubadala Investment Company (Abu Dhabi) Public Investment Fund of Saudi Arabia Other sovereign wealth fund activities 13 ESG in managing family foundations and family offices The family office Chan Zuckerberg Initiative The Giving Pledge Bill & Melinda Gates Foundation Lilly Endowment Inc Day One Fund Open Society Foundations The Robert Wood Johnson Foundation The Rockefeller Foundation Bloomberg Family Foundation (Bloomberg Philanthropies) The Ford Foundation Carnegie Corporation of New York Providing Services to the Foundation Community Council on Foundations The Foundation Center 14 Faith-based investing Common features Christian values investing GuideStone New Covenant Funds The Interfaith Center on Corporate Responsibility Christian Super Timothy Plan Funds Eventide Funds Catholic values investing: socially responsible investment guidelines USCCB investment policies Catholic values mutual funds Ave Maria Mutual Funds LKCM Aquinas Catholic Equity Fund Catholic values ETF Islamic values investing Green sukuk bonds Islamic values indexes, mutual funds, and ETFs MSCI Islamic index series FTSE Shariah indexes Amana Mutual Funds The Iman Fund Shariah compliant ETFs Jewish values investing Jewish values indexes, mutual funds, and ETFs 15 ESG investing-organizations having direct impact Women’s Sports Foundation USA for UNHCR Michael J. Fox Foundation for Parkinson’s Research Elton John AIDS Foundation Water.org Ocean Conservancy Project AWARE Sea Shepherd Conservation Society UNICEF and UNESCO UNICEF UNESCO Red Cross and Red Crescent Societies The Salvation Army Meals on Wheels Habitat for Humanity 16 What’s next for ESG investing? Empirical studies of environmental, social, and governance investment performance The future of environmental, social, and governance investing Environmental, social, and governance investment concerns to be addressed References Index