Earth Day is on Friday, April 22. Celebrate Mother Earth by taking the day to get outside, enjoy nature, and consider your role in your community.
We all want to make small changes to make the world a better place, and some of these changes can take place through your investment portfolio! This article discusses Environmental, Social, and Governance (ESG) investing, how to get started, and the difference it can make for both your investments and the environment.
Discover ESG Investing
ESG investing is a strategy that allows investors to build a more ethical portfolio. ESG investments are very strict in what they include, and the criteria determining this classification are directly tied to a company’s structure and performance rather than personal values.
Here are some factors that are considered by each category:
- Carbon emissions
- Air and water pollution
- Water usage
- Fossil fuel/green energy usage
- Employee diversity
- Customer satisfaction
- Employee protection
- Sexual harassment and protected class policies
- Fair labor practices
- Human rights
- Board member diversity
- Executive salaries
- Conflicts of interest
- Shareholder rights
Investments can have an ESG score that determines how well they adhere to the given guidelines and consider the above factors.
The Rise of ESG Investing
Not only can ESG investing be better for the environment and social justice, but it can also be great for investors. According to Forbes, ESG funds outperformed non-ESG funds based on annualized returns over the last 3-, 5-, and 10-year periods.1 ESG funds also outperformed non-ESG funds and the stock market in risk-adjusted returns.
It is no surprise that ESG funds have become more popular for investors of all backgrounds. According to Fast Company, investors poured about $120 billion into sustainable investments in 2021, more than double the $51 billion in ESG investments in 2020. About one-third of all assets contain sustainable investments.2
Plus, the diverse availability of different ESG investment funds may fit more directly with your values, such as investing in a company that is championing green energy initiatives or is working to become carbon neutral or even carbon negative.
How to Get Started with ESG Investing
If you’ve decided that ESG investing is aligned with your personal goals and values, you can take steps to align your investment portfolio to reflect those values.
The first method is to examine your portfolio and include ESG companies. You can find ESG investments that align with your financial goals, risk tolerance, and personal values by doing your research. You can open your own brokerage account or work with a robo-advisor platform to manage your ESG portfolio. ESG investments can include individual stocks, ETFs and mutual funds. Building a fully diversified ESG portfolio could be challenging and sorting through the investment date could be overwhelming.
Another option is to work with a Financial Professional who has experience with ESG investing and understands the underlying exposures of each respective investment. Look for an advisor who believes in being a good global citizen through their business practices and the investment options they offer their clients, as well as their experience and knowledge of the ESG space.
From recycling and cutting out single-use plastic to cleaning up the streets, parks, and beaches by your house, there are many ways to get outside and celebrate Earth Day. ESG investing can be a lasting strategy to help you create a portfolio that reflects your values.
ESG Investment Risks: Investment strategies, mutual funds and ETFs that focus on environmental, social and governance (“ESG”) practices of corporations in evaluating security selection are subjective and may be defined in different ways by different funds and managers. A portfolio manager’s ESG practices may significantly influence performance causing performance to be higher or lower than the overall market or comparable funds or strategies that do not employ ESG practices.
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.