ESG Fundamentals
Within this rapidly evolving environment, a basic understanding of what ESG means in an investment context is absolutely essential for all investors.
Is ‘engagement washing’ poised to be the next term maligning asset management’s ESG movement? Institutional investors often engage with companies they invest in to improve those companies’ environmental, social and governance practices – rivalling capital allocation as a core mechanism for achieving sustainable investment outcomes. But do engagement activities really deliver impactful, positive, real-world outcomes?
As a growing number of institutional investors make ambitious sustainability commitments, the volume of engagement activity reports grows with them. Company interactions on sustainability topics are commonplace, the range of engagement themes has widened, and goals have become loftier. Meanwhile codes of best practices are evolving to encourage a focus on real-world outcomes in engagement reporting, in contrast to the investment outcome focus of just a few years ago.
By focusing engagement efforts on outcomes directly linked to their investment strategy and performance objectives, investors are more likely to influence positive change.”
Yet, there is a growing realisation – and genuine bewilderment – that engagement for positive sustainability outcomes is not living up to the expectations of its proponents. When it comes to mitigating the negative impacts of certain economic activities on our environment and society, engagement can be influential, but it is rarely transformational—and an engagement expectation gap is emerging.
So how can asset managers engage for positive environmental and social impact with authenticity? How can clients navigate the landscape of engagement numbers, promises and real-world aspirations? Can we cut through the rhetoric to bring clarity to the true role of engagement?
ESG Investing
At PGIM we strive to embed ESG best practices throughout our investment, risk and talent management processes.
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