As ethical investing becomes an increasingly popular strategy for investors, questions around understanding how to make socially-conscious investment decisions have been brought to the surface. The level of integration a company puts forth regards the degree of commitment to prioritize the ESG criteria they are concerned with in their investment strategy. Currently, proposals have been made by the SEC to better define how companies may handle their responses to the surge in ESG-related materials and strategies that are cropping up.
The SEC is interested in boosting the transparency of ESG strategy to increase the number of ESG methodology disclosures. In this way, investors establish a formal way that information is shared. From there, investors can make informed decisions and compare various products with more knowledge. While adopting a standard approach may sound limiting, it serves investors because it allows them to select products that are best suited to their preferences.
ESG Integration can be simplified to match the needs of fund managers and investors. The SEC defines ESG Integration as a type of investment strategy whereby a minimum of one ESG factor, along with factors not considered ESG, are considered for investments. ESG factors are classified as Environmental, Social, and Governance. For more information on How the SEC defines ESG Integration, consider the information below.
How the SEC defines ESG Integration Today
ESG Integration is one of investors’ three main strategies to carry out socially conscious investing. ESG Integration is, of the three, the least involved with the ESG issues that orbit around socially conscious investing. An ESG Integration project does not need to guide decisions around every ESG issue. Fund managers are more concerned with returns than to the sustainable choices outlined for the specific ESG integration.
How the SEC defines ESG integration vaguely captures how established ESG factors are embedded into their investment decision and the set ESG factors the fund is looking into. While there is debate over the best approach to ethical investing, How the SEC defines ESG integration today does not restrict ethical investor decisions around ESG funds. The changes create organization and clarity so investors and fund managers can optimize their decision-making processes.
ESG Factors Are Always Changing
Currently, understanding what qualifies as ESG is vague. The SEC does not oppose funds and advisors defining these factors independently. How the SEC defines ESG integration does not impede on ethical investors’ shared goal, that being to make decisions that promote the most benefit and the least harm to society and the environment. This, however, does not mean that all sustainable choices are favored. When such choices may interfere with economic factors, an ESG Integration fund may look elsewhere to protect investment returns.
A Loosely-Defined Concept And Active Balancing Act
How the SEC defines ESG integration has become more specific in recent proposals. Ultimately, a balancing act of working toward sustainability without dismissing the need for returns may be considered the active approach to applying ESG Integration as a loosely-defined concept for ethical investing.