Impactful Investing with ESG
(Environmental, Social, Governance)
By Lindsey Simek, Financial Advisor
With Earth Week upon us, it is not only a time to celebrate, but also a time to really consider our role in improving and protecting our delicate environment. Of course, there are the obvious steps that can be taken. Pollute less, recycle more, things that us, as individuals, can do to promote a cleaner and healthier Earth. However,
there are also things that can be done that are not so obvious and we, as investors, can actively participate in promoting sustainability. We can not only improve our environment, but we can take part in improving and promoting safe working conditions, fair pay, promoting education, and helping those in need. These are just a few examples of the many environmental, social, and governance issues that we can address. So, how can we do this, how can we promote a better and brighter
future? Investors can begin by integrating ESG investments into their portfolios.
ESG investments focus on Environment, Social, and Governance issues. The popularity and growth of ESG investing is undeniable, and according to many experts, is here to stay. Nonetheless, we are still experiencing hesitance from investors to take on ESG and integrate it into their portfolios. This is because many believe that to actively
invest in ESG, a higher price must be paid, and desired returns given up. However, the evidence shows that investors do not need to pay extra to align their investments with their values.
Many studies have shown that the performance of an ESG based portfolio aligns with that of a traditional investment portfolio. In 2021, the Morgan Stanley Institute for Sustainable Investing, published a study Sustainable Funds Outperform Peers during 2020 Coronavirus. In this particular study, the Morgan
Stanley Institute found that in a year of recession and extreme volatility funds that focused on ESG factors, in both stocks and bonds, across the board, performed better than traditional, non ESG based portfolios.
When investors do decide to integrate ESG into their portfolios, they are putting their money to work with companies that are making a conscious effort to create a better environment, culture, and world for both current and future generations. By implementing ESG investing, investors are demanding change and have the potential to mold
the market. ESG investing allows individuals to associate their financial goals with their ethics, values, and beliefs. They are creating higher standards and holding companies accountable and all the while, not having to give up returns.
When deciding whether to invest in ESG, do not just invest in a three-letter acronym. Know and understand what you are investing in. Educate yourself with how your investment effects a company’s stakeholders. Finally know and understand the company that you are investing in by identifying their strengths and weaknesses as well as the
sustainability of the company itself.
Our population is growing, people are living longer and demanding more. We are seeing the necessity in allocating our natural resources and using renewable energy as much as possible. As a result, energy transitions are intensifying and the ESG sector is expanding, not contracting.
Sources Cited:
https://www.ussif.org/performance
The Morgan Stanley Institute for Sustainable Investing: Sustainable Funds Outperform Peers during 2020 Coronavirus
