Our last few blogs have been focused on understanding your values and what that means for your life plan. What if not only your life plan reflected your values, but your investment plan did, too? In this article, we’re sharing how ESG investing allows you to align your values with your investments.
What is ESG Investing?
ESG investments are screened for environmental, social, and governance (ESG) criteria to help investors connect your dollars with your values. Some investment managers take the approach of eliminating certain categories of investments, such as oil or tobacco or companies, that don’t meet their environmental or social standards. Others screen out companies based on governance factors, like not having female board members or good pay equity policies.
Alternatively, ESG investment managers may take the approach of scoring organizations across a variety of categories. Then, they allocate more of the portfolio to the highest performers and avoid investments in the lowest performers. The goal is to incentivize companies to improve their environmental, social, and/or governance policies by increasing investment in higher performers.
Common ESG Misconceptions
When ESG or Socially Responsible Investments (SRI) first became available, some skeptics argued that these investments would underperform traditional investment strategies. In addition to concerns over a lack of diversification, ESG investments tended to have high expenses that would eat away at overall performance over time.
Now, however, there are companies in most sectors that meet ESG criteria, addressing the diversification issue. In addition, numerous studies show that investors do not have to pay more to align their investments with their values, or to avoid companies with poor ESG practices.
Getting Started with ESG Investing
While no investment can guarantee returns, ESG investments can perform as well as unscreened portfolios. Let us know if you are interested in learning more about the different ESG portfolios we have available.
This material has been distributed for informational purposes only. All investments carry certain risk and there is no assurance that an investment will provide positive performance over any period of time. Because ESG criteria excludes some investments, ESG strategies may not be able to take advantage of the same opportunities or market trends as those that do not use such criteria.