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When it comes to investing, due diligence is a tool used to assess the material factors of an investment. In order to minimize the risk associated with an investment, due diligence is used as a tool to help predict, or anticipate, the level of risk associated with a specific investment. Both individual and institutional investors across all risk profiles use due diligence as a foundational step in their investment strategy. The same way you check the reviews and menu of a restaurant before you make a reservation, due diligence in investing is used as a way to screen a potential investment for any red flags, or possibly illegal track records.
Incorporating ESG into investment strategies is a key way to account for the potential risk — particularly to environmental, social, and governance metrics — of an investment. Approaching due diligence through an ESG lens allows for investors to look specifically at the ways in which an investment may hinder environmental sustainability, social initiatives, or governance concerns such as compliance. ESG due diligence, like standard due diligence, is the first step in analyzing an investment. Practices such as child labor, steep emissions, or non-compliance, can be uncovered in the process of ESG due diligence. These practices, among others, go directly against the key parameters of ESG and impact investing. Due diligence is a critical step in ensuring that these practices are excluded from an investment strategy.
At Physis, our platform is built to provide portfolio analysis and offer robust insights across a breadth of ESG and impact indicators. Our inhouse data research has become the core of the Physis platform and allows our clients to screen portfolios across all of our indicators, including alignment to the UN Sustainable Development Goals. Interested in learning more about our methodology? Sign up today!