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What is ESG investing?

ESG investing is a rules-based approach to evaluating companies based on their commitments to positive environmental, social and governance (ESG) business practices. ESG characteristics can help investors integrate non-financial but material information into their investment process.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

3 pillars of ESG investing

ESG analysis covers a broad range of environmental, social and governance topics which can help you invest sustainably.

Environmental
Climate change
Natural resources
Pollution and waste
Environmental opportunities
Social
Human capital
Product liability
Stakeholder opposition
Social opportunities
Governance
Corporate governance
Corporate behaviour

ESG investing to help manage risk

ESG investing can help investors look beyond traditional financial reporting to better understand a company’s long-term risk and return prospects. Even companies with healthy balance sheets or those which operate in tech-forward sectors can be susceptible to major news events that can influence stock prices.

ESG metrics can provide investors with a rules-based, transparent mechanism for identifying companies that may be prone to major controversies and can subsequently help investors seek less portfolio volatility over time.

 

Systematic risks

Weather
patterns

Water
scarcity

Data
security

Skills
shortages

Stock-specific risks

Accidents

Fraud

Shutdown

Strikes

What are ESG ratings?

ESG ratings are an objective evaluation of a company’s commitment to sustainable business practices:

  • A company’s ESG score is independent of the industry in which it operates.
    A specific stock can have a strong rating, even if the broader industry lags behind, and vice versa. For example, not all oil and gas companies have low ESG scores while not all tech companies have high scores.
  • ESG scoring methods vary across sectors.
    E, S and G factors are given different weightings depending on the industry a company operates in. The specific issues taken into account will also differ, determined by what is most relevant and material to company performance in each case.

The below example demonstrates how the make-up of ESG scores varies between the financials sector and the energy sector.

Tap the coloured bars to see the contribution of each factor to a company's overall ESG score

Environment
Carbon emissions
Governance
Corporate
governance
Environment
Biodiversity & land use
Carbon emissions
Toxic emissions & waste
Governance
Corruption &
instability
Corporate
governance

Source MSCI. For illustrative purposes only

All iShares sustainable funds

ESG ratings and characteristics can help investors integrate more non-financial but material information into their investment process. Visit each fund’s product page to learn more about its ESG profile.

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Read BlackRock's ESG investment statement

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.