In the absence of long-term risk and performance Qualified support for ‘environmental’ and ‘social’ data, the role of ESG is unclear for many sovereigns screens given reputational risks of non-adoption, Environmental, social and governance (ESG) investing however further commitment depends on emerging looks to incorporate ethics and sustainability into evidence of investment implications the investment process. Sovereigns are well placed For sovereigns looking to adopt ESG investing, the to implement ESG strategies (or component sub- most common step is to introduce negative screens strategies) due to their scale, reach, size and long- on managers and securities which fall below ethical term orientation. In addition, many investment and standards (figure 23). This process lends itself to liability sovereigns have a clear basis to consider environmental and social factors, given growing sustainability factors in delivering their objectives, levels of disclosure of carbon footprint and employee given their own mandates and through their growing _ diversity within public markets. Indeed, environmental internal management capability. factors are among the ESG issues of greatest However, contrary to early expectations, uptake importance to sovereigns shown in figure 24. of ESG practices appears to be less broad than Certain sovereigns noted that negative initially anticipated. On the one hand, established environmental and social screens can be simply sovereigns across Europe, Canada and Australiahave _ inserted into the investment process as an extra step been pivotal to the evolution of ESG investing among __ within security selection, with minimal additional institutional investors. Many of these sovereigns were costs of management and expertise. Respondents crucial in the development of sovereign investment also stated that the measurement of the investment strategies over past decades, and continue to have impact of negative screens was simple, as the social high l