ESG Investing

Strategy Type

Screening & Integration

Typical Stage

All Stages

Return Profile

Market-Linked

What It Is

ESG investing treats environmental, social, and governance factors as material inputs to investment decisions rather than as ethical overlays.

The underlying claim is financial: that poor governance, environmental liability, or labour practices represent real risks that conventional analysis under-weights.

Typical Approach

Negative screening to exclude particular sectors or practices
Positive screening favouring stronger ESG performers
Integration of ESG factors into standard financial analysis
Active engagement with management on governance
Disclosure and reporting against defined frameworks

Return Drivers

Avoiding companies with unpriced environmental or regulatory liabilities
Governance quality as a predictor of management effectiveness
Capital flows favouring companies meeting institutional mandates
Regulatory shifts that penalise laggards
Reduced tail risk from controversy and litigation

Key Risks

Inconsistent definitions and ratings across providers
Greenwashing, where claims exceed substance
Screening may reduce diversification
Regulatory disclosure requirements continue to change
Debate persists over whether ESG screening affects returns

What Founders Should Know

Institutional investors increasingly operate under mandates requiring ESG assessment, so governance and reporting practices can affect access to capital regardless of the founder's own views.

Establishing basic governance and data collection early is far cheaper than retrofitting it during diligence.

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