Asset Management What is ESG?

What is ESG?

To holistically value a business enterprise, pure financial aspects alone no longer suffice today. Examining how companies perform with regard to specific ESG criteria is equally as important.

ESG stands for environmental, social and governance – a concept that has gained currency in the financial industry as a basis for judging the sustainability of investments. Integration of ESG criteria can potentially improve the risk/return attributes of investment portfolios.

These three ESG factors are vital for assessing the sustainability and relevant risks of an investment position:

The image presents current ESG factors, which are environmental, social and governance

Investment arguments

Practical experience confirms that ESG criteria are core hallmarks of long-term enterprise quality. Companies that take ESG aspects seriously are generally better managed and do business more sustainably and more with the future in mind. Companies with high ESG ratings are more crisis-resistant and achieve better performance marks on average than their peers.

Correlation between ESG criteria and corporate performance: % of studies finding a negative or positive correlation

Source: Friede, Busch & Bassen (2015): ESG and financial performance: aggregated evidence from more than 2,000 empirical studies, Journal of Sustainable Finance & Investment.

Arguments in favor of sustainable investing

  • ESG investments can curb risk and exert positive impacts at the same time.
  • ESG investments tend to exhibit better risk/return attributes than equivalent traditional investments.
  • ESG criteria are a key sign of quality.

Potential risks

  • Actual asset value performance depends on the chosen investment strategy and the market environment.
  • Sustainability investment strategies present a risk of higher tracking errors, particularly if they are managed against traditional (non-ESG-compliant) benchmarks.
  • Your relationship manager will be happy to explain the risks of individual investments to you.

For further information, please contact your Credit Suisse relationship person.