The future of ESG is expanding. Here’s how 2 experts define ESG investing and why it matters

• Experts share how ESG investors can understand and grow with emerging opportunities.
• Environmental and Social Governance (ESG) investing is adapting to consumer behavior.
• The conversation was part of Insider's event "Finance Meets Its Future," which took place on Thursday, March 23, 2023.

ESG gives investors an opportunity to invest in companies with initiatives, missions, and goals that align with their values. However, ESG investing has recently come under review for greenwashing or other hidden tradeoffs. Leaders in the field are working to better define and understand what ESG investing is and the good it can do for companies and beyond.

Aniket Shah, global head of ESG and sustainable finance at Jefferies Group LLC, explained that at the moment, "We're trying to figure out what the climate topic's all about, and there's more energy, enthusiasm, excitement and questions around it than ever before."

"Investors that we speak to get it, climate change and how policy makers are reacting to climate, how business leaders are reacting to climate, how technology is reacting to climate, is impacting asset prices," Shah said during Insider's virtual event, presented by Amberdata, "Finance Meets Its Future," which took place on Thursday, March 23rd.

During the session "Navigating ESG Investing Challenges" Rebecca Ungarino, senior finance reporter, spoke with Shah and Nikita Singhal, coHead of sustainable investment and ESG at Lazard Asset Management.

While expressing values through investing is not a new practice, Singhal deems that there needs to be a "healthy detangling" of what constitutes ESG versus virtue-based investing.

Singhal said, "I define ESG as discovering and pricing, environmental, social governance risks and opportunities. And in that iteration, therefore, it is still very nascent. It's not something that has been around for decades."

Singhal touches on how ESG is not one-size-fits-all solution for companies. The issues, values, and environments vary from sector to sector.

She said, "The financial materiality of ESG is very contextual. And what I would argue today is to be able to do that well, you can't approach it in that monolithic way where you have 10 ESG metrics that you look across an entire portfolio, and call certain companies good or bad."

Shah expresses how the variation and newness of ESG are what makes it exciting. The one component that he believes is cross-cutting is the 'G' for governance.

Shah said, "The G of ESG, which oftentimes gets forgotten, is a cross-cutting topic because it's ultimately a question of, how are decisions made, and who controls a company?" He maintains that governance is the cross-cutting topic that any good CEO, investment banker, or investor would think through.

The things investors should know about are changing and shifting based on consumer tastes and preferences. Singhal explained that consumers are, "voting with their wallets in terms of things that they care about."

She continued, "From what their packaging should be like, that may not impact the valuation of a Coca-Cola or a large CPG company, but it certainly, we are starting to see it impact the valuations of packaging companies down the supply chain."

When it comes to what Shah and Singhal are most excited about in the evolving ESG space Shah is motivated by carbon removal programs. Shah said, "There are technological breakthroughs happening every day in direct air capture and nature-based solutions and so on, that are coming to life because of technology and policy."

Singhal concluded that she is looking forward to broadly flushing out what ESG is and gaining clarity. She said, "It's not there trying to prove that we can save the world. And it's not something that's projecting an individual's personal values or biases. It's just making us disciplined investors."