In February 2020, Amazon founder Jeff Bezos invested $ 10 billion in his assets to establish the Bezos Earth Fund.
Bezos says climate change is the biggest threat to the planet and will support scientists, activists, and non-governmental organizations (NGOs) who are doing research and development to improve global environmental problems.
Recently, investment in ESG has become a major theme in global investment.
According to a report by the GSIA (World Sustainable Investment Union), the global ESG investment balance at the end of 2017 was 30.7 trillion dollars (about 3200 trillion yen), an increase of 34% from two years ago. This is about 30% of the world’s investment.
In Japan as well, the additional investment trust “Global ESG High-Quality Growth Equity Fund (without currency hedge)”, which was launched by asset management company Asset Management One in July 2020, is the second-largest investment trust in Japan at 383 billion. Collecting yen, the latest total net assets have swelled to 1054.4 billion yen.
In Japan, Prime Minister Yoshihide Suga announced his green strategy in various countries around the world, and in his first policy speech after taking office, he called for “240 trillion yen of cash and deposits sleeping in private companies and overseas environmental investment of 3,000 trillion yen. We will also create a financial market framework for that purpose. ”
Let’s deepen our understanding of ESG investment, which is mainly made by institutional investors such as pension funds and insurance companies, which are based on long-term investment.
Table of Contents
What is ESG Investment? Understanding The Meaning of Each is The Starting Point
In conventional investment, investment decisions are made by looking at the financial information of the company, but in ESG investment, the long-term growth of the company is evaluated from non-financial information such as “Environment (environment), Social (society), Governance (corporate governance)”. do.
Investors are permeated with the idea that companies with excellent corporate governance can expect sustainable growth by tackling ESG such as environmental issues and social issues, which are long-term issues of the earth, as well as business conditions such as business performance and financial information. I’m doing it.
There are no global standards, and institutional investors set and evaluate their own ESG indicators and invest in industries with a high overall ESG rating. Let’s take a look at each of the areas that are fundamental to understanding ESG investment.
The easiest of the three is probably “Environment”. Select and invest in companies that respond to environmental issues such as reduction of carbon dioxide (CO2) emissions, use of renewable energy such as solar power, wind power, and geothermal power, and reuse and recycling.
Nomura Asset Management has already converted corporate carbon dioxide (CO2) emissions into costs. Incorporated them into financial information. Used them for investment decisions. In September 2020, SOMPO Holdings was the first non-life insurance company in Japan to announce that it would not underwrite or invest in newly constructed coal-fired power plants in principle.
What is emphasized in “Social” is the creation of a comfortable working environment, such as measures for human rights of employees, diversity, and ensuring work-life balance.
It will be inevitable to establish systems such as maternity leave, childcare leave, reduced working hours, and long-term care leave.
Attention will also be focused on companies. That contributes to social issues such as solving poverty, supporting developing countries, and improving child labor issues.
“Governance” is an investment in a company. That is well-governed, such as avoiding scandals that directly lead to deterioration of business performance, disclosing information for risk management, and utilizing outside directors.
Thorough “risk management” and “compliance” are required.
■ ESG Investment Made By Seven Methods
There are seven types of methods defined by the “GSIA (World Sustainable Investment Union)”. That you should know as methods for actually investing in ESG.
In order for an individual to invest in ESG. He or she must either invest in an ESG investment trust or select and invest in ESG by himself. But let’s take a look at the investment method.
Negative screening, the oldest investment method for ESG investment, excludes specific industries and companies with ESG perspectives from investment, such as fossil fuels, nuclear power, tobacco, gambling, and alcohol. It is still the method that accounts for most of ESG investment.
“International norm screening” excludes companies. That violates international ESG norms, such as environmental destruction and human rights violations, from investment targets.
Institutional investors make their own decisions based on the United Nations Global Compact (UNGC). The International Labor Organization (ILO) treaties on child labor and forced labor.
Contrary to the above two, the “positive (best-in-class) screening”. That started in Europe in the 1990s utilizes the “ESG index” evaluated by index calculation companies to invest in companies with high ESG evaluations. And.
For example, the Dow Jones Sustainability World Index (DJSI World) is composed of only the 2,500 stocks that make up the S & P Global BMI and are excellent from an ESG perspective and are reviewed every year. There is.
If you have invested yourself, refer to this “ESG index”.
“ESG integration” is a method of comprehensively deciding investment targets by incorporating ESG-related initiatives as non-financial information in addition to conventional investment decisions based on financial information.
This method is widely used at present. But investors differ in their judgment as to which field of ESG to specialize in.
As the name implies, “sustainability theme investment” is a method of investing in companies with the theme of “sustainability”.
Renewable energy, green technology, water treatment, and sustainable agriculture are well-known investment targets.
“Impact community investment” is a relatively new investment method that invests in companies. That contributes to solving environmental and social problems.
Companies that provide products and services. That has an impact on the environment and society may be relatively small. Unlisted companies may be selected.
The difference from the above six methods is “engagement/exercise of voting rights”, which is a so-called “activist” type strategy.
In addition to investing, as a shareholder. We engage in engagement (building relationships). By having dialogues on ESG issues and exercising voting rights at general meetings of shareholders.
It is said that ESG investment does not generate large returns in the short term. It is easy to realize a stable investment in the long term.
It is easy to judge a company. That faces the long-term issues of the earth and manages the company properly will grow sustainably. ESG investment can be said to be the best field for future asset formation for the working generation.