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What Is ESG Investing? A Complete Guide to ESG Investment

8-min read

Updated on 2026-4-30

Author：AIA Content Editorial Team

ESG investment—also known as Environmental, Social, and Governance investment—is an investment strategy that evaluates companies not only based on environmental practices, but also broader factors related to society and corporate governance. As the public increasingly values sustainable development, ESG themes have opened up new investment opportunities. Before adopting an ESG investing strategy, it is important to gain a deeper understanding of what ESG investment entails. ESG investing is increasingly adopted by long-term investors seeking sustainable value creation and risk management. This article consolidates the essential knowledge you need to know about ESG investing.

What Is ESG Investment?

ESG investment refers to incorporating ESG factors into the process of formulating the investment strategies. In recent years, ESG has been widely used as one of the indicators for assessing corporate performance¹.

The Three Pillars of ESG²: Environmental, Social, and Governance

Environmental (E):
Includes environmental responsibility and climate action—for example, reducing carbon footprint, increasing digitalization and automation, and ensuring new or refurbished buildings meet industry-recognized green-building standards.

Social (S):
Focuses on broader positive social impacts, such as promoting financial inclusion and expanding access to quality healthcare.

Governance (G):
Covers human capital and corporate governance practices—for example, having a diverse board of directors, upholding ethical decision-making culture, and ensuring fair and transparent recruitment processes.

In addition to these three pillars, how a company treats its stakeholders—including investors, employees, and society as a whole—is also considered in ESG assessments. For more background and explanations on ESG concepts, you may refer to "FAQs on ESG Concepts."

ESG Investment vs. Socially Responsible Investing (SRI)

Although ESG investing has its roots in earlier approaches such as Socially Responsible Investing (SRI), the two strategies differ in both purpose and methodology.

SRI is primarily driven by ethical or moral principles. It often relies on exclusionary screening, meaning investors deliberately avoid companies or industries that conflict with their personal or social values. Typical SRI considerations include issues such as human rights, diversity, environmental protection, and social equality, with the main goal being alignment with specific beliefs.

ESG investing takes a different approach. Rather than focusing on moral judgments, ESG analysis evaluates environmental, social, and governance factors to assess their financial relevance. These non-financial indicators are used to identify long-term risks, operational strengths, and growth potential that may affect a company's performance. The objective is to enhance investment decision-making by integrating ESG insights into fundamental analysis, not simply to express value-based preferences.

Five Major ESG Investment Strategies

When building a portfolio with ESG factors in mind, investors can employ a variety of analytical approaches.

1. Negative Screening (Exclusionary Screening)

This involves excluding specific companies or sectors from a fund or portfolio based on predetermined criteria. For instance, excluding all fossil fuel companies if the investment goal is to decrease climate change's impact.

2. Positive Screening (Best-in-Class Screening)

This strategy selects a subset of top-performing companies from a defined industry based on specific ESG characteristics. An investor might select the 10 apparel companies with the lowest carbon footprint.

3. Portfolio Tilt

This strategy involves increasing the percentage of high-ESG-rated investments in a portfolio relative to non-ESG investments, while maintaining sector weights to match a target index. This is considered a relatively low-risk strategy that still prioritizes ESG goals.

4. ESG Integration (ESG Integration Strategy)

This is the practice of embedding ESG considerations into a firm's existing investment process. It uses ESG data to inform investment decisions, positioning companies with strong material ESG performance as potential investment opportunities that can increase a portfolio's return. Implementing this may require updating procedures to consider ESG factors.

5. Sustainability-Themed Investing

In this strategy, investors identify a specific issue relating to sustainability (such as renewables, waste management, or sustainable healthcare) and invest in indexes or companies that directly address it.

How to Assess a Company's ESG Investing Performance?

1. Corporate Reports

Reviewing corporate reports is one way to understand a company's future development direction. However, since ESG investing does not yet have a unified reporting standard, the ESG-related information disclosed in corporate statements is still relatively limited and may often not fully reflect potential risks. Therefore, selecting suitable ESG investments should not rely solely on a company's annual report analysis.

2. Company Background

When selecting ESG investments, investors should be alert to signs of "greenwashing". Some companies may present themselves as environmentally responsible in order to gain investor trust while concealing practices that harm society or the environment. This may be intended to preserve or expand their market share and influence.

3. ESG Ratings

To help investors understand a company's ESG rating, ESG rating agencies typically quantify ESG practices using scoring systems. Generally, the more thoroughly a company integrates ESG initiatives, the higher its ESG score. ESG rating agencies mainly base their assessments on voluntarily disclosed company data, and since each agency uses its own assessment standards, the same company may receive different ESG ratings from different agencies.

Common ESG rating agencies include the Hong Kong Quality Assurance Agency (HKQAA)³ and MSCI⁴.

SFC-Recognized ESG Funds in Hong Kong

The Hong Kong Securities and Futures Commission (SFC) has published a list of ESG funds⁵. These funds incorporate ESG factors as key investment focus in accordance with the "Circular to Management Companies of SFC-Authorized Unit Trusts and Mutual Funds—ESG Funds." and reflect ESG considerations in their investment objectives or strategies.

As of 31 March 2025, there were 218 SFC-authorized ESG funds, with a total assets under management (AUM) of HKD 1,083 billion (USD 139.2 billion)⁶.

However, SFC authorization does not imply that these products are suitable for any specific investor. In other words, the ESG funds on the list are not an recommendation or endorsement, nor do they constitute a guarantee of ESG characteristics or related performance.

AIA's Commitment to Strengthening ESG Investment

AIA's ESG investing strategy stems from its operating philosophy:

"Doing the Right Thing, in the Right Way, with the Right people… and the results will come."

The ESG investing strategy is built upon five pillars:

Health and Wellness
Sustainable Investment
Sustainable Operations
People and Culture
Effective Governance

Since 2017, AIA has been included in several ESG indices, including but not limited to:

FTSE4Good Index Series
Hang Seng Corporate Sustainability Index
MSCI Low Carbon All World Index
Solactive L&G ESG APAC ex Japan NTR Index

AIA is also recognized by ESG rating agencies such as CDP, Sustainalytics, and MSCI. Moving forward, AIA will continue to refine its materiality approach, strengthen its ESG foundations, improve resource allocation, and enhance decision-making processes. This will better prepare the company to address emerging ESG-related risks while identifying opportunities that enable the team to create a positive impact and achieve its goal.

ESG Investing – FAQ

ESG factors help investors identify material non-financial risks and opportunities that may affect a company's long-term performance. Issues such as climate risk, data security, labor practices, and governance standards can influence business sustainability and future value creation.

Investors may assess ESG performance through corporate reports, company background research, and third-party ESG ratings. As ESG reporting standards are still evolving, multiple sources should be considered.

ESG ratings are assessments provided by independent agencies using their own methodologies and data sources. As a result, the same company may receive different ESG scores from different rating agencies.

Key Takeaways

💡 ESG investment focuses on three pillars: Environmental, Social, and Governance.

💡 ESG analysis looks at finding value in companies, while SRI often uses negative screening based on moral values.

💡 As of April 2025, there are 218 SFC-authorized ESG funds.

💡 Before investing in ESG, it's essential to review the fund's investment strategy, fee structure, associated risks, historical returns, and liquidity.

💡 AIA has been committed to promoting ESG, earning recognition from major ESG rating agencies since 2017.

This information is owned by AIA, and may not be copied or reproduced without AIA's written consent. You may not copy or store this content on any other website or content platform.

This information is for general reference only and does not constitute sales advice, product recommendations, or service offers. Before purchasing an insurance product, customers must complete a financial needs analysis. AIA does not guarantee the accuracy and completeness of the content and information provided. AIA reserves the right to pursue legal action and seek compensation for any infringement and/or legal issues.

^1.Legislative Council (2022), 立法會五題：推動環境、社會及管治的發展

^2.AIA Group Limited (2021) ，友邦保險的負責任的投資方法

^3.Hong Kong Quality Assurance Agency (2009) ，綠色金融認證計劃―ESG 基金

^4.MSCI (2023), MSCI指數信息

^5.Securities and Futures Commission (2023), 環境、社會及管治基金列表,

^6.Securities and Futures Commission (2025), 證監會2024-25年年報,

https://www.sfc.hk/-/media/EN/files/COM/Annual-Report/2024-25/SFC-Annual-Report-2024-25_Eng_final.pdf

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