Investment approach incorporating Environmental, Social, and Governance factors alongside financial analysis — evaluating non-financial risks and opportunities that affect long-term returns.
Deeper Explanation
ESG's investment case rests on the premise that companies with poor environmental practices, weak social records, or poor governance face financial risks not yet fully priced by the market — regulatory penalties, litigation costs, customer and employee flight, stranded assets. The empirical evidence on ESG's return impact is mixed: some studies show outperformance; others show no significant difference after controlling for sector and style exposures. Marks' pragmatic view: governance quality (the G in ESG) is clearly material to investment outcomes and should always be analysed. Environmental and social factors are increasingly financially material in specific sectors — carbon exposure for oil companies, labour practices for consumer brands. Blanket ESG screens, however, risk excluding undervalued opportunities in sectors experiencing cyclical rather than structural impairment.
Continue Learning
Go deeper into the Value school — frameworks, case studies, and decision systems.