What is ESG?
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BlackRock believes that investments that consider E, S and G metrics (Environmental, Social & Governance), can help you pursue long-term success in your portfolio and contribute to a more sustainable world.
Environmental, social and governance (ESG) investing is about investing in progress and recognising that companies solving the world’s biggest challenges can be best positioned to grow. It is about pioneering better ways of doing business and creating the momentum to encourage more people to opt into the future we’re working to create.
To navigate the evolving sustainable landscape, investors require new guidelines, definitions and frameworks.
Our investment conviction is that climate risk is investment risk, and that integrating climate and sustainability considerations into investment processes can help investors build more resilient portfolios and achieve better long-term, risk-adjusted returns.
We believe that society is on the cusp of transformational change towards sustainability. Companies, investors and governments must prepare for a significant reallocation of capital. BlackRock’s sustainability strategy focuses on two structural themes driving this change: transition finance and stakeholder capitalism.
A transition to net zero demands a transformation of the entire economy. All companies will be profoundly affected by this change. While the transition will inevitably be complex and difficult, it is essential to building a more resilient economy that benefits more people. As a fiduciary, we are committed to helping our clients navigate, drive and invent this economic and financial transformation.
It is clear that putting your company’s purpose at the heart of your relationships with your stakeholders is critical to long-term success. We help clients meet their social and financial objectives by linking sustainability with financial returns.
What is an ESG rating?
An ESG rating measures a company’s exposure to long-term environmental, social, and governance risks. These risks — involving issues such as energy efficiency, worker safety, and board independence — have financial implications. But they are often not highlighted during traditional financial reviews. Investors who use ESG ratings to supplement financial analysis can gain a broader view of a company’s long-term potential.
A good ESG rating means a company is managing its environment, social, and governance risks well relative to its peers. A poor ESG rating is the opposite — the company has relatively higher unmanaged exposure to ESG risks.
Along with ESG reporting, ESG ratings help investors understand a company’s priorities and the long-term risks it could face in the future.
One of the most widely referenced ESG rating systems is the MSCI ESG score. MSCI scores roughly 8,500 companies and more than 680,000 fixed income and equity securities globally, including ESG funds.
Social score issues fall into four categories: human capital, product liability, stakeholder opposition, and social opportunities.
The world is changing.
Global challenges, such as climate risk, increased regulatory pressures, social and demographic shifts and privacy and data security concerns, represent new or increasing risks for investors. The economic pressure the COVID-19 pandemic has placed on some industries has affected companies’ exposure to ESG risks and their ability to manage them. Companies face rising complexities and greater scrutiny if they are not adequately managing their ESG or climate risk.
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