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Environmental, Social And Governance Factors In Global Macro Investing

Mar. 07, 2018 1:38 PM ET

Environmental, social and governance (ESG) factors are being recognized in fixed income investing as value-added indicators of potential economic performance. In the latest edition of "Global Macro Shifts," the Templeton Global Macro team outlines how it integrates ESG factors into its research process. The team has developed a proprietary ESG scoring system called the Templeton Global Macro ESG Index (TGM-ESGI), to assess current and projected ESG conditions in various countries, and to facilitate macroeconomic country comparisons around the world. This document is a summary version of the full research-based briefing, which can be found in its entirety at the Global Macro Shifts homepage.


The world of finance professionals has recently begun to attribute much greater and explicit importance to the environmental, social and governance (ESG) factors in investment decisions.

Interest has also increased within sovereign governments, emphasizing the effect that ESG has on macroeconomic performance. This should not be surprising. Economists and historians have for a long time recognized and debated the importance of environmental factors and of social and political institutions for the long-term economic development of countries. Some of the early theories-going back all the way to Machiavelli in the sixteenth century-assigned great importance to the role of the environment, stressing that geography and climate determined the success of agriculture, the prevalence of diseases, and other determinants of economic growth. The role of environmental factors has been explored more recently by Jared Diamond in his 1997 best-seller Guns, Germs and Steel, and by Jeffrey Sachs in a 2001 paper (Tropical Underdevelopment, National Bureau of Economic Research).

The importance of institutions has been studied and documented even more extensively. To give but two examples: Harvard political scientist Robert Putnam has argued that the very different economic performances of Italian regions can be traced to the respective strength of civic institutions

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Franklin Resources, Inc. (NYSE: BEN) is a global investment management organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management solutions managed by its Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust, Darby, Balanced Equity Management and K2 investment teams. The San Mateo, CA-based company has more than 65 years of investment experience and over $908 billion in assets under management as of May 31, 2014. For more information, please call 1-800/DIAL BEN® or visit franklinresources.com.

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