What is value investing? - Value investing is in short an approach that seeks to buy undervalued shares (companies priced cheap on stock markets, compared to their higher intrinsic value). Many academic studies have shown that the value investment approach usually outperforms over the longer term.
Longer-term thinking is essentially the core of the investment philosophy, and, therefore, ESG risks (environmental, social and governance) play a natural part of value investing. The commitment to both responsible investment (RI) and value investing focuses not just on how companies perform financially but also on how they behave with regard to the environmental, social and governance risks and opportunities that they face. These ESG issues can impact on financial performance and should be integrated in investment decision-making.
Experts in Value and Responsible Investment
Consequently, investors should take into consideration RI endorsements like they are set out by different labels, which also exist in Luxembourg - for example by the fund labelling agency LuxFLAG. The granting of such a label provides valuable reassurance to investors that the fund retains the high standards of ESG integration expected of it.
An Ethical Approach to Emerging Markets Investment
The prospect of investing in some of the world’s fastest-growing economies is attractive. Historically, however, emerging markets have been viewed as being potentially riskier destinations for investment - not just because of political uncertainty, but also due to less regulation and transparency. ESG concerns can also be higher.
It is therefore necessary that the funds analyze ESG risks, and aim to engage with companies where there is a significant issue. But some investors prefer an approach of exclusion rather than engagement. They are seeking funds with an ethical screening process to exclude companies in verified breach of international norms relating to human and labour rights, environmental law and bribery and corruption, as well as a sector screen that excludes companies involved in tobacco, porn, alcohol, gambling weapons, oil sands and thermal coal.