Explain how ESG factors enter the management of long-horizon institutional portfolios

Long-horizon institutions such as endowments are exposed to systemic risks, climate change among them, that diversification cannot remove, and their stakeholders often expect investments to align with the institution's mission. ESG can be applied through exclusionary screens, integration of ESG factors into security analysis, best-in-class selection, thematic or impact investing, and active ownership through voting and engagement, including assessing external managers' ESG practices during selection and monitoring. Key issues are defining the objective (risk and return, values or impact), measuring outcomes when ratings from different providers often disagree, and fiduciary duty: ESG choices should be justified by beneficiaries' interests. The trap is assuming divestment is the only tool; selling out gives up influence and may narrow the opportunity set.