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.

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.

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.

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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.