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Investing for the long term

Unpacking ESG’s complexity



What does it mean to invest with sustainable objectives? The different dimensions of “ESG” are complex, and their interpretation can be highly personal. This vital but illusive concept is discussed by a Capital Group expert in the latest monthly Paperjam/Delano “Investing for the long term” podcast.

Investing while respecting environmental, social and governance (ESG) goals is revolutionising the financial services industry. Yet despite efforts by states, the European Union, asset managers, data companies and others, there are no simple metrics that work for every point of view. “ESG means different things to different people,” said Belinda Gan, an ESG investment director at Capital Group. “It depends on where they live, their influences, and how they think about the world. And of course, different generations might have different views and priorities” she added.

Capital Group is one of the largest and most experienced active investment management companies in the world. For over 90 years they have helped a range of investors pursue their long-term investment objectives. The analysis of material ESG risks and opportunities is a key part of Capital Group’s investment process.

In this podcast, Ms Gan breaks down the components of ESG to explain the broad concepts underlying each of the three dimensions. The “G” for “governance” is about how companies are run and how they make their decisions. There are some universally accepted baseline principles, but also a range of choices that investors need to consider.

Similarly, the “E” for “environmental” targets something that “is much broader than climate change,” said Ms Gan, even if this aspect might be top of mind for most investors at the moment. Water management, waste management, pollution, use of resources and efficiency and many other things all come into the mix. Each area is a specialisation that requires high levels of expertise to understand the concepts and adapt them to the world of investing. Ms Gan gives some examples of the challenge in the podcast.

Perhaps even more complex to grasp and quantify is the “social” dimension, the “S”. Most investors will have personal opinions about labour standards, health and safety, human rights, diversity, equity, inclusion, and the rest. Ms Gan noted that measuring performance and blending this with financial return objectives is a particularly tricky task.

This episode is the fourth of the second season of the “Investing for the long term” podcasts series featuring Capital Group. These monthly podcasts, produced and hosted by Delano and Paperjam, explain some of the key challenges investors are facing and the investment opportunities related to those challenges. The first series can be accessed here.

To listen to Capital Group’s podcasts, click here.