What does ESG mean?
ESG investing stands for Environment, Social, and Governance. These are three broad criteria used to analyze stocks to help investors create a more ethical portfolio.
Why should I care about ESG?
In the past, we were forced to choose between investment performance, or investing with a clear conscience. However, according to a 2019 Morgan Stanley study, there is no financial trade-off in the performance of sustainable funds compared to traditional funds.
Thanks to technology and an ever-growing interest in ESG, sustainable investing has become more accessible to anyone who understands the value of the stock market but doesn’t want their money to go to companies with unethical practices or products.
And, with the increasing popularity of ESG, companies are encouraged to employ more ethical policies because they know these are increasingly important to their investors and the general public.
Essentially, ESG investing lets you “vote with your money.”
The S in ESG – Social
This element of ESG describes a company’s culture and how it interacts with its employees as well as its community at large.
- Is the company an equal opportunity employer?
- Does it provide employee development?
- Does it prioritize human rights and safety policies in its business practices?
- Is the supply chain ethically and sustainably sourced?
- Are employees treated fairly?
These are just some examples of criteria used to determine which stocks are considered socially responsible.
How can I invest in ESG companies?
There are three main ways to invest sustainably and ethically
1. The first way is to do your own research and establish your own consistent ESG priorities for companies you want to invest in. Once you’ve created your own parameters, there are several online platforms that allow you to buy stock in those companies.
Essentially, you’re creating a do-it-yourself portfolio with stock you’ve specifically chosen based on your specific values. One downside of this route is that you have to do thorough research for each company you want to invest in.
The other important thing to remember is that buying individual stocks is considered risky because you’re increasing your exposure to a select few companies, therefore, decreasing your portfolio’s diversification. For example, let’s assume you purchase stock from Company X because they promote employee development and give back to their community.
They sound like a good investment and a great company, but if all your money is tied up in their stock and they suddenly go out of business, that’s your money down the toilet.
2. The second way to create an ESG portfolio is to invest in mutual funds or ETFs – exchange-traded funds - that specialize in ESG. These are typically investment companies that have done the research for you and created their own criteria to determine if a company meets their standards of ESG.
This way you’re investing in a pool of stocks that meet ESG standards. This takes the work out of researching specific companies and also improves your portfolio diversification. The downside is that you still have to research which ETFs and mutual funds meet your standards of ethics and sustainability, and navigating investment websites can be mind-boggling.
3. The third way is to create a financial plan with an advisor that includes your specific life goals and your customized ESG portfolio. This means telling your advisor what matters to you, so they select and create the portfolio that’s right for you.
After you have your financial plan in place, we help monitor your goals’ progress and make sure you’re choosing the right investments to help you achieve them.
How do I get started with ESG?
With the rise in popularity of socially conscious investments, ESG ETFs and mutual funds are much more accessible, but building an investment portfolio on your own can be daunting.
At Meyer Wealth Advisors we specialize in creating customized financial plans – that includes creating an SRI portfolio that’s tailored to your values. Schedule a call below or email us at email@example.com to learn how we can create your customized SRI portfolio.