**3. ESG strategies**

Investors and asset managers use seven strategies to integrate ESG factors in their investments. Selection of the strategies is influenced by investor objectives. The strategies are Best-in-class, Exclusions, ESG integration, Impact investing, Norms-based screening, Sustainability-themed and Engagement and voting [29]. Descriptions of the strategies below are largely according to [29], although there are other bodies that use slightly different nomenclature.

#### **3.1 Best-in-class**

Best-in-class involves the selection of companies with the best ESG practices. The best companies are identified by ESG analysis, and they are usually selected by comparing ESG ratings provided by different rating agencies. Asset managers invest in companies with the best ESG ratings.

#### **3.2 Exclusions**

This is an approach where companies are excluded based on the values of an investor. Companies engaging in activities deemed negative to society are excluded. Activities and or products that may result in exclusion include controversial weapons, pornography, tobacco and alcohol, fossil fuel extraction and nuclear energy. In the past, there were divestment from companies involved in the Vietnam war, colonialism, slavery, apartheid as well as those that were complicit in racism.

#### **3.3 ESG integration**

ESG integration in the sense of ESG strategies is the consideration of ESG factors alongside financial factors, in the analysis of investments. The integration process is influenced by the potential impact of ESG factors on financial performance. The investor believes that a company will have good financial returns if it has high ESG ratings.

#### **3.4 Impact investing**

Impact investments are made into companies with a clear intention to generate an ESG impact alongside a financial return. A major characteristic is the intention of the investor to have measurable ESG impacts from the investment. The financial return ranges from below-market to market rate.

### **3.5 Norms-based screening**

Norms-based screening is an approach that involves excluding companies that violate international norms and conventions. These norms and conventions are defined by international organizations. They include the UN Global Compact Principles, the Universal Declaration of Human Rights, ILO Declaration on Fundamental Principles and Rights at Work, and the United Nations Convention against Corruption.

## **3.6 Sustainability-themed**

Themed investing is the selection of companies involved in sustainable development challenges. Sustainability themes include renewable energy, waste recycling, clean water provision and human health.

#### **3.7 Engagement and voting**

Engagement refers to all interactions between an investor and investee to address ESG issues and business strategy. The objective of engagement is to exert influence on ESG issues. Voting is the investor's practice of exerting voting rights at annual general meetings, where commonly ESG issues are taken into consideration. Engagement and voting is a long-term strategy seeking to influence corporate culture and increase disclosure.
