What is a primary aim for integrating ESG into an investment process?

Integrating Environmental, Social, and Governance (ESG) factors into an investment process primarily aims to improve the quality of engagement and stewardship activities, while also enhancing investment returns. This approach recognizes that ESG factors can significantly impact financial performance and risk assessment. By incorporating ESG considerations, investors can foster better communication and relationships with companies, leading to more informed decision-making and improved corporate governance.

Moreover, there is a growing body of evidence suggesting that firms with strong ESG practices tend to outperform their peers in the long run. This performance can arise from various avenues, such as enhanced operational efficiencies, stronger brand loyalty, reduced regulatory risks, and an ability to attract and retain talent. Thus, by aiming to improve engagement and stewardship, investors not only enhance their impact on corporate behavior but also align better with their financial goals.

The other choices, while relevant in certain contexts, do not capture the overarching aim of integrating ESG into investment strategies as effectively. Regulatory compliance, reputational risk management, and internal audit considerations are important, but they do not reflect the core investment rationale behind integrating ESG principles, which centers on creating value through informed, responsible investing.