Environmental, Social, and Governance (ESG) Considerations in Investment Analysis

Exam Focus

In this topic review, we consider how environmental, social, and governance (ESG) factors affect analysis of a company. First, we think about global variations in corporate ownership structures and how corporate governance is impacted by these structures. Next, we reflect on various company specific corporate governance factors.

We then identify the various ESG risks and opportunities to analyze. Finally, we consider some examples that demonstrate how ESG risk and opportunities are evaluated.

Introduction

In the field of investment analysis, factors related to ESG have become an increasingly important consideration. For example, environmental risks have taken on a greater focus as the public devotes more thought to conservation of the planet’s resources and as corresponding regulations are strengthened globally. In general, a firm today should give considerable attention to its impact on the local community, its employee health policies, and how the company promotes itself.