When using "ESG" - let's speak the same language

So here we are on the eve of St. Jean Baptiste Day in my home province of Quebec, Canada - an occasion to celebrate, among other things, the thriving francophone culture and language!

We’ve certainly had our share language issues here, but there’s another language issue that has me much more concerned these days, and that’s the perceived interchangeability of terminology in the growing field of responsible investing, and the one-size-fits-all-it-means-the-same-thing-anyway mentality…

What do you think of when you hear the word “sustainability”?  And what about “responsible investing” or “sustainable investing”?  Are they the same or different?  Are they the same as “ethical investing”? Do you think of “stay-away-from-this”, or “does-not-make-any-money”? And what about ESG… What does that mean? (for starters, it’s short for “environmental, social, and governance issues”)

If you’re like most people in the mainstream business and finance communities, you think they pretty much mean the same thing. Ah, but they don’t! There are considerable differences between them, and they deserve to be understood. Responsible investing is a dynamic and complex field, and many concepts have evolved over the years (see the table below for some definitions).

In particular, I believe that ESG integration needs to be clearly understood, because it has become the most widely adopted responsible investment strategy of mainstream investors in Canada and the US.

With 92% of investors wanting companies to identify and disclose material ESG-related issues and most of them not getting the information they need from companies to make appropriate investment decisions, it behoves companies to understand what ESG really means. And by companies, I mean management, directors, and investor relations professionals, not to mention the accounting professionals who service them and the financial analysts who evaluate them. It’s time to understand the difference in responsible investing terminology. Let's start speaking the same language!