SUSTAINABLE INVESTING

ESG Integration

 

What is ESG?

Environmental, social and governance (ESG) integration is the practice of incorporating ESG information into investment decisions to help enhance risk-adjusted returns, regardless of whether a strategy has a sustainable mandate. There is no one-size-fits-all approach, but at BlackRock we see it as being about making research, data and insights available to all our portfolio managers and working with them to identify potential process enhancements across all investment activities.

ESG is often used interchangeably with the term “sustainable investing.” We see sustainable investing as the umbrella and ESG as a data toolkit for identifying and informing our solutions.

ESG data is most often categorized as “non-accounting” information because it captures components important for valuations that are not traditionally reported. Company valuation has become more complex, with a growing portion tied up in intangible assets. ESG metrics provide insights into these intangibles, such as brand value and reputation, by measuring decisions taken by company management that affect operational efficiency and future strategic directions.

Environmental (E)
Environmental (E)
Covers themes such as climate risks, natural resource scarcity, pollution and waste, and environmental opportunities
Social (S)
Social (S)
Includes labour issues and product liability, risks such as data security, and stakeholder opposition
Governance (G)
Governance (G)
Encompasses items relating to corporate governance and behaviour, such as board quality and effectiveness

The ESG considerations that are material will vary by investment style, sector/industry, market trends, and client objectives. ESG integration is about using research, data and insights to inform investment decisions.

Sustainability issues can contribute to a company’s long-term financial performance. Incorporating these considerations into the investment research, portfolio construction, portfolio review and stewardship processes can help enhance long-term risk adjusted returns.

This graphic depicts what ESG integration is and is not.

Source: BlackRock Sustainable Investing and BlackRock Investment Institute, December 2018. Note: The table is for illustrative purposes only.

Why BlackRock for ESG?

Our activities to integrate sustainability considerations into the investment process mirror the diversity of clients we serve, as well as the range of investment strategies and asset classes we offer. Across BlackRock, we provide all our investment teams with data and insights to keep them well informed of sustainability considerations.

Each of our investment teams is responsible for implementing ESG approaches in line with its investment mandate and is required to have a formal ESG integration statement to underpin its respective approach. Our portfolio managers are able to bring useful ESG information into their investment processes, discounting or emphasizing this information as they would any other financial input.