ESG Investing: Your Best Guide in Building an Ethical Portfolio

ESG Investing: Your Best Guide in Building an Ethical Portfolio

Through ESG investing, you can ensure that the dollars you put in will gain you a pretty penny while at the same time ensuring the success of a company you share your values with. 

ESG Investing

In today’s economic and evolving social climate, it’s so important to make informed and educate decisions when it comes to your financial situation.

This is especially true when making investments. You cannot simply make an investment in a company or a brand just because it’s making money.

You want to also make ethical choices.

Is this a company you want to support? Do they share the same values as I do?

The truth is, if you invest in a company, you are putting money in that company that may not represent the values you share and may even have practices that may not sit well with you.

In a way, it’s like you are giving your thumbs up or supporting a political cause if you support them with your money.

This is why ESG investing is so important to factor in when making your decision for investments. But what is ESG investing? Let’s take a look.

What Is ESG Investing?

ESG stands for environmental, social, and governance.

These three aspects govern what you do when you make an ESG investment.

It considers all the financial factors and the overall impact of your investments.

An ESG investment’s score is measured based on the sustainability of that investment in the three aspects mentioned.

What are the environmental impacts of my investment? What about social impacts? Lastly what about governance?

Let’s break that down, shall we?

Environmental, Social, Governance – What Does That Mean?

To have a better understanding here’s a simple explanation of each factor.

Environmental: Environmental factors refer to anything that the company does that affect the environment as a whole.

Is the company using sustainable methods in its operations, is it mitigating greenhouse gas emissions, does it use natural resources efficiently and ethically, and how does it deal with recycling, are all questions you should ask.

Basically, you want to know what kind of environmental impact the company has and is it doing its part to protect the environment.

Social: This component takes a look at how socially responsible it is to the community around it.

The social component looks into both inside and outside of the company and looks at how it works to better the lives of its employees, their families, and the community it is part of.

It considers the proper treatment of employees and their benefits, if their practices are fair and ethical, if it prioritizes human rights, if it cares about its employees’ personal lives, and does it treat the community around it with fairness and equality.

Governance: The governance component is concerned about the company’s management and overall corporate governance.

It will look at how is the company’s leadership, what does their board of executives looks like, are they reasonable and great to work with, are they a diverse group of people, and are they responsive and transparent to their shareholders.

All these questions are considered if a company has good governance and whether it aligns with your beliefs.

Why Should I Consider ESG Investing?

Simply put, if you are looking to be responsible with your investments, then you need to also clearly know if the companies you are investing in are companies you trust and companies that you also want to support.

This is because all your investments actually puts money into those companies which they can use to further their own vision and mission and you wouldn’t want to empower a company that does not represent who you are and what your values are.

How Do I Get Started?

ESG Investing

Many ESG investors consider how involved they will be in the decision making and managing of their ESG investments.

There are two ways to go about it: by managing it yourself directly or through an investment manager. 

If you’re going the DIY route, then of course, you will need to read up on the company’s profile and their sustainability efforts.

Once you’ve found a company that’s more aligned to your values and your moral compass, you will then need a brokerage firm.

Many online stockbrokers have ways to sift through different ESG investments. You can then head to the next step once you are set up.

If you, however, feel overwhelmed by the amount of information available on ESG investing, then what you may need is a robo-advisor.

Robo-advisors are financial managers that will help recommend ESG investments and it will do most of the work for you.

It’s kind of like a set it and leave it system where you just need to take a few moments of your time on the kinds of investment you want to do and the robo-advisor will do the rest.

It’s easy and hassle-free and what’s great is that the charges are very very minimal.

Just make sure to investigate and research well the methodology used by the robo-advisor so that it actually screens the kind of socially responsible investments that you would like to make.

Know Your Own ESG Policies

The great thing about ESG investing is that policies that match your values and your personal beliefs can be cut and dry.

You just need to ensure you outline what is acceptable and not acceptable to you and clearly mark it so that if a company falls outside of your preferred guidelines, you know right away not to invest in that company.

This is how most ESG investors work when trying to find the best companies for them. It’s not all about the profit.

Finding What Companies to Invest In

ESG Investing

Before making any final decisions on how to invest your money, we highly suggest that you read up from independent research firms like Morningstar to get a read on how companies are performing.

Once you have a brokerage firm, companies you are interested in, and have read up on the latest trends, you can then start investing.

And just like regular stock investments, two types of investments are available to choose from: individual stocks and mutual funds.

When considering individual stocks, you will want to limit the amount and portion of your investment and not put most of your investments there.

This is primarily because individual stock trading with ESG investing is just as risky as with regular stock trading.

You will want to diversify your portfolio as much as possible and not put all your eggs in one basket in case that stock fluctuates or tanks.

Some companies releases impact reports that detail what they are doing for sustainability for the planet and how they are acting within their company’s culture.

Third parties like Glassdoor is a good resource that talks about the work culture of a company.

Another type of investment is mutual funds. You should invest a majority of your investments here as it has the most stable way of making money and less risky than individual stocks. Funds can easily fill out your portfolio and based on projections, they are best for most people to invest in. These funds sometimes focus on particular issues such as issues with race, green energy, or even on social class. 

Final Thoughts

ESG investing is not for everyone. But if you’re worried about where your money is going and is it supporting the right companies then ESG investing is definitely the way to go.

Through ESG investing, you can ensure that the dollars you put in will gain you a pretty penny while at the same time ensuring the success of a company you share your values with. 


Author: John Benares

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