So how has ESG investing changed in recent years? Well, if we have a look at the history of ethical investment, that dates back to the early 1980s, when funds were starting to invest using ethical criteria, we then had a rapid evolvement and development of ESG investment strategies after the global financial crisis and having worked in a sustainable agriculture and on the funds.
About 10 years ago, there certainly was a growing momentum around ESG investing. However, that momentum faded and, and in the wake of the financial crisis, investors and businesses reverted to survival, and a lot of the ethical considerations fell away and were put on the, on the back burner. And if you fast forward to where we are today, We can see that ESG investing has evolved significantly and Israeli moved from being a niche offering for the private clients to being something that is now core and very much in the mainstream of our investment thinking, but investments across the industry.
ESG investment managers are not only looking at the financial returns of the company. They're looking at the ESG credentials of that company as well. So what has been the catalyst for this move towards ESG investing. Well I think one of the main points during the last 10 years was the Paris agreement being signed in 2015, and really that kicked off a big wave of change across the world with, with governments starting to make commitments towards addressing climate change.
we've then seen that accelerated through the likes of Greta, Thunburg and David Attenborough really taking that message out into the wider population. And at the same time, we've seen companies start to change the way that they are managing and running their businesses.
And seeing those growth opportunities in clean energy, in sustainable agriculture and many other areas. And I think one of the other recent catalysts has been the pandemic; it's been that opportunity for investment managers to reflect on the way that they invest within portfolios and for clients to think about the way that they want their capital to be invested.
So what are the risk and return characteristics of ESG investing? Traditionally, many people have thought that sustainability and capitalism couldn't co-exist; however, we are announcing plenty of examples where that is in fact happening. We've also seen the, the change when it comes to assumptions around returns from ESG investments. The perceived wisdom is that if you reduce your investment universe for an ESG strategy, then your potential return is impacted.
However, as the universe of ESG assets has expanded significantly, that's become less of a consideration. And as conversations have moved on, we've started to see that the investment returns from an ESG portfolio, are comparable with a traditional approach. As with any type of investing, there's no perfect ESG assets and we do expect to see ESG failures. that said ,that's no different from from a traditional approach. And the potential returns from ESG assets are compelling. So, how do you construct an ESG portfolio? Well, there are broadly three approaches. The first approach is exclusion. The second approach is inclusion and the third approach is impact investing.
So for an exclusion approach to constructing a portfolio. An investment manager will determine certain categories of investment that are excluded from the investment universe. And this can cover things like tobacco, alcohol armaments, nuclear, really the list can be shaped and determined by the clients and the investment.
The second approach to ESG investing is establishing a set of inclusion criteria where you may want to think about specific themes that a portfolio should have. So they may range from things like clean energy, water, and waste management, healthy living, or sustainable agriculture.
And the third approach of establishing any ESG portfolio is to create an impact portfolio where you specifically target your capital to investments that are going to be making a positive impact, either from an environmental, social or governance perspective. So how do you assess a portfolio from an ESG perspective?
Well, there are lots of different ratings agencies that now attribute ESG scores to companies and to funds. Examples of that would be MSEI, ESG ratings, Sustainalytics and Bloomberg green. If you looked at MSEI ESG ratings, for example, they categorise companies into ESG leaders. Average companies and ESG laggards, assessing each company and, and the activity within E S and G criteria.
And also where they sit within a peer group. However, it's important not to be overly reliant on ESG scores and to make a full assessment a company. yourself either through reading their sustainability reports, their impact reports and conducting your own due diligence. In summary, it's important to take the quantitative and qualitative analysis and to align the investment objectives on an ESG portfolio with that of the client.

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