Financial Performance
Some investors want to integrate as much ESG information available into their investment process in order to help "see" all relevant risks, while some want to invest in innovative companies with sustainable solutions that will increase future returns. ESG integration intentionally considers ESG factors alongside traditional financial analysis to identify risks and opportunities. Stewardship involves having dialogues with investee companies on ESG issues and exercising ownership rights and a voice to promote change in order to hold investee companies accountable to improve their ESG impacts.
Value Alignment
Some investors want to ensure that the companies in their investment portfolio follow a principles-based approach to doing business, such as incorporating the Ten Principles of the UN Global Compact. Other investors may want to invest only in companies that are aligned with their own personal values. One approach to exclusionary screens involves aligning with international norms or standards, such as not violating the UN Global Compact. Another approach involves excluding investments in companies, industries, or countries based on moral values, such as tobacco, weapons, and alcohol.
Impact
Some investors want measurable impact with their investments, which is fundamentally about triggering or accelerating positive change - either on the part of the investor or the company. Change brought about within a company thanks to investor activities is the investor impact, whereas the change that the company activities achieve in social and environmental parameters is the company impact. The primary mechanisms for investor impact are stewardship, seeking to hold investee companies accountable to improve their ESG impacts, and capital allocation, channeling funds to particular financial assets, such as private debt or equity. The primary mechanisms for company impact are growing the level of company activity and improving the quality of it.