Ethical Investing

Environmental, Social, Governance (ESG) Funds - The Basics

ESG is a Wall Street acronym for Environmental, Social, and Governance. The idea behind ESG investing is that investors care about investing ethically, even if it affects the bottom line. 

So, what kinds of initiatives do ESG funds cover? Environmental priorities cover issues such as reducing carbon emissions, pollution control, and sustainability. Examples of social factors include working towards diversity, equity, and inclusion efforts in the workplace. Governance oversight can include checking that executive compensation policies are appropriate and other business ethics.

Currently, there is no central oversight or authority that decides which companies meet specific ESG criteria. However, there are different rating tools available, such as MSCI that help provide ESG ratings to you, as the investor. 

ESG supporters argue that ethical investing is also better financial investing. For instance, being less dependent on fossil fuels will not only be better for the environment, but will be better for business long-term. However, the verdict is still out on whether ESG funds outperform non-ESG funds; like all investing, you take on risk.

ESG has gained signifiant popularity over the years. Now the biggest investment firms in the world, BlackRock, Vanguard, etc, are promoting ESG strategies and putting more of their assets into ESG funds, as much as $18 trillion in the last couple of years! That means investors have more options to consider if they are interested in pursuing these kinds of funds. 

So what does this mean for us, as investors? Consider the following:

• Do you want to make a positive impact with your money?

• Do you have climate concerns and want your money to be invested in a sustainable way?

• Do you believe in the future and potential of ethical investing? 

Check out my resources page for more information and actionable steps.