If you’re looking to invest in 2022, then chances are you’re trying to narrow down what kind of investments you’re going to focus on. ESG investing includes environmental, social and governance investments and falls under the umbrella of “socially responsible investors” that care both about impact and profits. It can be a great way to see financial returns, while knowing that your money is helping to make a tangible positive difference in this world. If you’d like to learn more about ESG and how it can factor into your investments, keep reading.
ESG is Growing
In 2018 alone, approximately $12 trillion worth of investments were made with a socially responsible strategy. ESG is becoming more mainstream in investing as modern investors are interested in putting their money into projects that reflect their social values. While it’s impossible to predict the future, it’s likely that more and more people will look to ESG investments in order to strike a balance between financial returns and improving the world we live in. Fund management companies such as Colorado Capital Management can help you find the right ESG to help improve your portfolio while putting your money behind a project that you believe in.
The environmental criteria part of the ESG investment looks to measure how much a firm or organization is doing to address environmental concerns such as global warming, pollution, and their overall carbon footprint. The social criteria is more focused around how the company treats people and interacts with them. This includes a broad range of topics and criteria, such as fair trade, employment management, their health and safety policies and diversity. Governance focuses on the leadership demonstrated within the company and looks to a multitude of factors such as diversity, pay and the overall company ethics.
Benefits of ESG Investing
The main benefit to ESG investing is that you’re able to put your money towards causes that you care about, while still expecting some financial returns. It’s the best of both worlds. Most often you’ll see ESG investing projects target the market returns – meaning you should be able to expect similar returns as other projects, but sometimes the company will focus more on the social impact than the financial impact. You’ll be able to feel good about how you’re making money, knowing what causes are being supported and seeing the real impact of your dollar. Businesses that operate under ESG investing also offer additional levels of information and reporting not seen elsewhere, allowing you to learn more about the organizations you’re supporting.
What to Look for in ESG Investments
When choosing an ESG investment, it’s important to consider all aspects of the investment. You’ll want to research the company or organization to see if their values align with your own. You’ll also want to consider their past performance, both in terms of their social impact, but also their financial situation too. You may choose to have a portfolio of a variety of different ESG investments with varying importance placed on net returns, versus the ESG performance. It can be helpful to work with a broker or investment manager to ensure that you are being matched with projects that line up with your expectations and goals. You can also choose to fund your ESG investments in interesting ways, for example you can funnel your retirement savings into ESG investments, allowing you to not only grow your retirement funds, but to make a real difference along the way.
Legitimacy of ESG Investments
One issue that you may face now that ESG investing is gaining more popularity, is that companies and organizations may try to pretend to be sustainable, in order to falsy attract more investors. This is called “Greenwashing” and can be extremely misleading. It’s important to do thorough research before investing, including checking the ratings as well as a fund’s proxy guidelines to be certain that the project is implementing ESG values. That’s why I suggest it can be helpful to work with a fund manager, as they can help you filter projects to ensure that you’re only investing in legitimate projects that are accurately represented.
One of my favorite things about ESG investments is that it is possible to make money while making a difference.