A Guide to Investing in ESG

It is not a new trend for investors to seek out companies that are doing good in the world. Previously popular as SRI (socially responsible investing), a value-based strategy for investors, the focus has now shifted to ESG investing. ESG is a measurable approach that rewards companies that take a positive stance on environmental, social and/or governance issues. While the term “ESG” has been a recent buzzword in the investing world, it is important to identify what ESG investing is and why it is important in today’s world. Here is our “Guide to Investing in ESG”.

What is ESG Investing?

ESG investing prioritizes research regarding environmental, social, and governance issues in harmony with the valuations and financials of companies. Below is a breakdown of each of the ESG factors:

Environmental:

Focuses on subjects like pollution and waste, climate change, energy use, green infrastructure and future environmental opportunities.

Social:

Centers on people-related elements of a company such as employee treatment and benefits, diversity and inclusion in hiring, employee safety protocols, and more. 

Governance: 

Refers to company oversight practices like fair executive compensation, diversity of board of directors, and voting practices for shareholders. 

The summation of these factors makes up the ESG investment approach. Below is an outline of how ESG investing differs from socially responsible and rules-based investing: 

ESG

Why Consider ESG Investing?

More investors are beginning to incorporate environmental, social, and governance investing into their portfolios—but what is the draw? On top of feeling good for supporting companies with top-notch ESG values, investing in ESG may also benefit you financially. A recent Bank of America study, ESG from A to Z: A Global Primer, found that companies with better ESG qualities financially outperformed those with poor ESG characteristics, within the time frames studied.

How Do I Implement ESG Investing in my Portfolio?

Because of the growing popularity surrounding ESG investing, there are many more investment options available today versus 20 years ago. Whether you begin by investing in one ESG-based mutual fund or exchange traded fund (ETF) or adopting a full ESG portfolio, there are many different paths to ESG investing. 

At Sharkey, Howes and Javer, we are proud to offer ESG investment options. If you would like to discuss opportunities within ESG investing, please set up a time to meet with one of our CERTIFIED FINANCIAL PLANNER™ professionals.

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