What Is ESG Investing?

 

ESG investing is a way of investing that considers not only financial returns but also environmental, social, and governance factors. ESG investors seek to align their portfolios with their values and support companies that are making a positive impact on the world.

 

ESG stands for:

 

- Environmental: How a company manages its environmental footprint, such as its energy use, greenhouse gas emissions, waste management, water conservation, and biodiversity protection.

- Social: How a company treats its employees, customers, suppliers, communities, and other stakeholders, such as its labor practices, human rights policies, diversity and inclusion efforts,

customer satisfaction, and social responsibility initiatives.

- Governance: How a company is run by its board of directors and management team,

such as its corporate structure, executive compensation, shareholder rights, business ethics,

transparency, and accountability.

 

Why ESG Investing Matters

 

ESG investing matters for several reasons:

 

- It can help investors achieve their financial goals while also contributing to positive social and environmental outcomes. Studies have shown that ESG investing can generate competitive returns over the long term  and reduce portfolio risk by avoiding companies that face regulatory fines or reputational damage due to poor ESG performance .

- It can help investors express their personal values and preferences through their investment choices. ESG investing allows investors to support companies that share their vision of a better world or avoid companies that violate their principles .

- It can help investors influence corporate behavior and drive positive change. By allocating capital to companies that perform well on ESG criteria or engaging with companies that need to improve their ESG practices , investors can encourage businesses to adopt more sustainable and responsible strategies.

 

How to Start ESG Investing

 

There are different ways to start ESG investing:

 

- Use an ESG rating system or framework. There are various tools and methodologies available to help investors assess how well a company performs on ESG criteria. Some examples are MSCI ESG Ratings, Sustainalytics, Morningstar Sustainability Rating, CDP (formerly Carbon Disclosure Project)[7], GRI (Global Reporting Initiative)[8], SASB (Sustainability Accounting Standards Board)[9], etc. These ratings can help investors compare different companies or funds based on their ESG performance.

- Use an ESG screening tool or filter. There are various platforms and websites that allow investors

to screen or filter potential investments based on their ESG preferences.

Some examples are As You Sow Invest Your Values, Fidelity Sustainability Center, Morningstar Portfolio Carbon Risk Score, etc.

These tools can help investors narrow down their investment options based on their specific criteria.

- Use an ESG-themed fund or ETF (exchange-traded fund). There are various funds and ETFs available that focus on specific themes related to ESG issues. Some examples are iShares Global Clean Energy ETF (ICLN)[10], SPDR S&P 500 ESG ETF (EFIV)[11], Vanguard FTSE Social Index Fund Admiral Shares (VFTAX)[12], etc. These funds can help investors diversify their portfolio across different sectors or regions while following an ESG strategy.

 

Conclusion

 

ESG investing is a growing trend among investors who want to align their money with their values and make a difference in the world. By considering environmental, social, and governance factors in addition

to financial returns, investors can achieve both personal and societal benefits through their investment decisions.

 

References

 

[1] What Is ESG Investing? – Forbes Advisor. Retrieved from https://www.forbes.com/advisor/investing/esg-investing/

[2] ESG Investing - Definition, Explained, Examples, Types, What is it? Retrieved from https://www.wallstreetmojo.com/esg-investing/

[3] What Is Environmental, Social, and Governance (ESG) Investing? Retrieved from https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp

[4] MSCI ESG Ratings. Retrieved from https://www.msci.com/esg-ratings

[5] Sustainalytics. Retrieved from https://www.sustainalytics.com/

[6] Morningstar Sustainability Rating. Retrieved from https://www.morningstar.com/company/sustainability

[7] CDP (formerly Carbon Disclosure Project). Retrieved from https://www.cdp.net/en

[8] GRI (Global Reporting Initiative). Retrieved from https://www.globalreporting.org/

[9] SASB (Sustainability Accounting Standards Board). Retrieved from https://www.sas