Even for people familiar with the responsible investment industry, ESG (environmental, social and governance) can mean different things – and it is often pursued for different reasons.

It doesn’t help that we hear about ‘value’ and ‘values’, ‘screening’ and ‘integration’, and catch-all terms – such as responsible investment, ethical investment or ESG investing – seemingly used interchangeably.

So what do they mean?

The best place to start is to understand that all of these terms describe something between ‘value-based investing’ and ‘values-based investing’.

Values-based investing means including extra (‘values’, ‘morals’ or 'ethical' related) rules when investing. There are many ways to do this. It can include restricting decision making or limiting the investible universe based on a set of values, or using an investment process that gives these factors extra weight. These values may be important for members, trustees or stakeholders. Screening (ethical screens), divesting and tilting all fall into this category.

Value-based investing is different. While it uses some of the same social or environmental information as values-based investing, it does so within its ordinary investment process to improve performance. In essence, it uses insights on ESG performance to gather a more complete picture of a business’s value drivers and to make better predictions about how it will perform financially over the longer term. ESG integration into core investment processes is the most common value-based approach.

It can help to think of continuum, with values-based approaches on one end, and value-based approaches on the other. Many approaches in the middle will have some overlap, with both financial materiality and ethical/moral factors considered in investment decision making.


The rapid growth and relative youth of the responsible investment industry, as evidenced not least by the growth in signatories to the UN's Principles for Responsible Investment (PRI), makes it something of a frontier in the investment world. And all new frontiers come with their challenges.

Cutting through spin to substance is one of these challenges – and a reason we encourage our clients and all newcomers to the field to apply the same scrutiny to ESG products and services as they would to other aspects of investing.

Quality of ESG analysis and integration, for example, can be extremely varied. We believe ESG analysis should withstand rigorous questioning about its investment implications. Any position taken – whether from a value or values-based approach – needs to be defensible. For this reason, rigorous frameworks are especially important and all decisions made should align with the agreed framework.

What’s more, in pursuing positive outcomes for beneficiaries and the community, doing good and doing well are not always in sync. For example, an asset manager reducing its carbon footprint is commendable, but it may not reflect the most meaningful action that manager can take to support emissions reduction if other investment activities undermine it. A diligent focus on outcomes, making sure ESG initiatives connect across the entire investment value chain, will have the most impact.


Regnan’s was established for a very clear purpose: to help future-proof portfolios by addressing long term and systemic risks that markets tend to misprice.

Since being active in ESG/responsible investment for nearly twenty years – since before the terms were even coined – we’ve been able to build a highly qualified and experienced team, with the ability to understand all aspects of the industry and the motivations for different investors to pursue different approaches. We’re also able to readily identify activity of substance and that of ‘spin’.

This makes Regnan well positioned to support clients pursue their chosen investment approaches in a considered and rigorous manner, whether they are seeking to be a leader in responsible investment, build a suite of ‘green’ products, or design their first ESG framework.

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