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Understanding ESG (Environmental, Social and Governance) in Investing- 11.20 Thumbnail

Understanding ESG (Environmental, Social and Governance) in Investing- 11.20

Michael D'Angelo- November 2020

You may have heard of the term “ESG” before but what does it mean? Simply put, Environmental, Social and Governance are a set of criteria that investors can use to analyze potential investments.

Back in the early 2000s, there was growing recognition that factors associated with ESG issues – traditionally not part of financial analysis – affected the financial performance of a business or the economy. Today, research has clearly shown the link between long-term sustainable performance and good financial results. At the same time investors are increasingly aware of issues such as energy, water use, climate change, diversity and human rights. Investing with ESG in mind has come of age.

How it works

“ESG investing or strategies that take a company’s environmental, social and governance factors into consideration, grew to more than $30 trillion in 2018 and some estimates say it could reach over $50 trillion in the next two decades.” (Pippa Stevens, MSNBC)

Teams that have adopted ESG integration look at:

Environmental factors – How a company’s operations affect the natural environment, and how the natural environment affects the company.

Social factors – The relationship between a company and its employees, suppliers and communities.

Governance factors – The structures or systems a company has put in place to ensure effective direction and control.

Identifying ESG strengths can help investment teams select companies with great potential for long-term growth.

“While it’s true that firms incur costs as they engage in good corporate behavior, they also stand to benefit from efficiency gains, greater trust from stakeholders, reducing risk and other long-term benefits,” says Margaret Childe, Director of ESG Research and Integration at Manulife Investment Management. “Companies are acknowledging these benefits and are taking action. Many companies globally have increased their focus on actively managing and reporting on ESG risks in order to remain competitive in the global market for products and services.”

Why ESG?

The Great Energy Transition (GET) will be bigger than most realize. We believe the great energy transition in 2020 is where Information and Communications Technology (ICT) was in 2000… just way bigger. 

Clean energy transition is already at $800 billion. Many firms predict that this transition will continue to grow by $2.5 Trillion a year over the next 20 years… If that plays out, the GET will end up being six times bigger than ICT today! This is a megatrend on the horizon. Environmental, Social and Governance focused companies generally experience less analyst coverage which may lead to underpriced/mispriced stock prices which present investors with great investment opportunities. Speak with us today and ask how we can adjust your portfolio accordingly to take advantage of this great opportunity.  


*This publication contains opinions of the writer and may not reflect opinions of Manulife Securities Investment Services Inc. and Manulife Securities Insurance Inc. The information contained herein was obtained from sources believed to be reliable, but no representation, or warranty, express or implied, is made by the writer or Manulife Securities Investment Services Inc. and Manulife Securities Insurance Inc. or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any of the securities. The securities discussed in this publication may not be eligible for sale in some jurisdictions. If you are not a Canadian resident, this report should not have been delivered to you. This publication is not meant to provide legal or account advice. As each situation is different you should consult your own professional Advisors for advice based on your specific circumstances.

This material is not to be construed as an offer or solicitation. The securities mentioned may not necessarily be considered suitable investments for all clients. Contact your Investment Advisor to discuss your individual investment needs.