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ESG (Environmental, Social, and Governance) investing has gained significant traction in recent years as investors increasingly prioritize sustainable and responsible practices. By delving into the motivations behind ESG investing and examining its potential benefits and challenges, we can better understand its role in shaping a more sustainable and socially-conscious global economy. ESG investing integrates environmental, social, and governance factors into investment decisions to assess the sustainability and ethical impact of a company or asset.

Firstly, environmental factors evaluate a company’s impact on the natural world. This includes its approach to climate change, resource management, pollution, energy efficiency and the preservation of biodiversity. Environmental considerations help investors identify companies that are proactively addressing ecological challenges and transitioning towards sustainable practices. Social factors include labor standards, diversity and inclusion, employee well-being, community engagement, human rights and product safety. Evaluating social factors enables investors to identify companies that prioritize social responsibility and contribute positively to the communities in which they operate. Lastly, the governance aspect focuses on a company’s internal structure and policies, including board composition, executive compensation, transparency, ethics and risk management. Strong governance practices ensure accountability, effective decision-making and long-term sustainability. Investors consider governance factors to identify companies with robust leadership and ethical practices.

There are several motivations driving the growing interest in ESG investing. For example, investors increasingly recognize the importance of sustainability in addressing pressing global challenges, such as climate change and social inequality. ESG investing allows individuals and institutions to align their investments with their values and contribute to a more sustainable future. Additionally, ESG factors provide insights into a company’s long-term viability and resilience. By considering ESG risks, investors can identify companies that are better positioned to navigate environmental and social challenges, reducing the potential for negative financial impacts.

Furthermore, research conducted by NYU Stern Center for Sustainable Business and Rockefeller Asset Management suggests a positive correlation between ESG and financial performance and concluded “improved financial performance due to ESG becomes more marked over longer time horizons”1. The 2023 Morningstar U.S. Sustainable Funds Landscape Report also supports this notion with its five-year track record review of sustainable funds, which “beat [Morningstar category] peers more than 60% of the time, and nearly half of sustainable equity funds made it to the top quartile for five-year returns.2” Based on the NYU Stern Center for Sustainable Business, Rockefeller Asset Management research and Morgan Stanley’s Institute for Sustainable Investing findings, companies with robust sustainability practices often exhibit better operational efficiency, innovation, and risk management, which can contribute to long-term value creation and shareholder returns3 4.

ESG investing can also drive positive change by influencing corporate behavior. Investors’ demands for sustainability and responsible practices encourage companies to improve their environmental and social performance, leading to more sustainable business models and practices. Moreover, the incorporation of ESG factors in investment decisions raises awareness among companies, investors, and society at large about the importance of responsible and sustainable practices.

However, a key challenge in ESG investing is the lack of standardized and consistent metrics for evaluating ESG performance. This makes it difficult for investors to compare and evaluate companies’ sustainability practices accurately. Efforts are underway to establish industry-wide standards and frameworks, such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), to enhance transparency and comparability. An additional question in this field relates to the concept of “greenwashing,” which refers to misleading or exaggerated claims of environmental or social responsibility. As ESG investing gains popularity, some companies may misrepresent their ESG performance, making it crucial for investors to conduct thorough due diligence and rely on reliable data sources. Ensuring data quality and accuracy is essential to avoid misinformed investment decisions.

AUM Asset Management Ltd.’s commitment to investing within an ESG and UN Sustainable Development Goals (“SDG”) framework began with its formation in 2015 and guided the independent investment firm’s decision to be domiciled in EU- Member country Malta. Malta, known for its ESG-focused regulatory structure for businesses, provided AUM Asset Management Ltd. the proper location for it to pursue a dedicated investment approach that applies a sustainability, environmental and governance lens to its investments. AUM Asset Management Ltd. draws upon its expansive international network of business contacts across Europe and North America to deliver high-return traditional, alternative, and real-asset investment solutions to its clients with a focus on ESG.

One important ESG-themed project that AUM Asset Management Ltd. has supported through its Sigra Fund is its investment in Lone Tree Properties Ltd. located in Lantzville, British Columbia where it has supported the sustainable protection and conservation of 1,800 acres of land. This land was previously decimated through logging until the land was purchased by Lone Tree Properties in order to bring a stop to the logging and protect the remaining land for the local community to enjoy, which includes a 900-acre, permanently-protected public park.

ESG investing represents a transformative shift in the investment landscape, driven by the recognition by companies and business leaders of the need for sustainability, impact, and responsible corporate practices. By integrating environmental, social and governance factors, investors can align their portfolios with their values and contribute to a more sustainable and equitable global economy. Although challenges exist, efforts to standardize metrics and improve data quality are underway, bolstering the credibility and effectiveness of ESG investing. As ESG considerations become mainstream, the financial industry has a significant role to play in driving positive change and shaping a more sustainable future.

1 Tensie Whelan, Ulrich Atz, Tracy Van Holt and Casey Clark, CFA. “ESG and Financial Performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 – 2020.”

2 “2023 Morningstar U.S. Sustainable Funds Landscape Report.” Page 24

3 Tensie Whelan, Ulrich Atz, Tracy Van Holt and Casey Clark, CFA. “ESG and Financial Performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 – 2020.”

4 Morgan Stanley Institute for Sustainable Investing: “Sustainable Reality Analyzing Risk and Returns of Sustainable Funds.”