This paper, Investment Governance and the Integration of Environmental, Social and Governance Factors, examines how pension funds, insurance companies and asset managers approach environmental, social and governance (ESG) risks and opportunities in their portfolio investments, and whether current investment governance standards in legal and regulatory frameworks encourage or discourage them from integrating ESG factors in investment decision-making. Concerns have been raised that investment governance standards may be unduly restrictive and so discourage institutional investors from taking ESG factors into account in their analysis, even when ESG integration could lead to more resilient investment portfolios.
We define ESG integration as:
- The recognition in the institutional investor’s investment policy or principles that ESG factors may impact portfolio performance and so affect the investor’s ability to meet its obligations; and
- Using analysis of those impacts to inform asset allocation decisions and securities valuation models (or employing third parties to do so).
The current document presents the findings of the OECD's stock-taking exercise of the regulatory frameworks that apply to institutional investment in various jurisdictions and how institutional investors interpret these frameworks in terms of ESG integration.