Impactful investing, or socially responsible investing, means investors can pursue strategies that create positive environmental or social benefits, in addition to realizing strong returns.
As we come off of the hottest summer on record, it’s past time to 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 we, as individuals, can do to promote a cleaner and healthier Earth.
It’s easy to get overwhelmed by the magnitude of climate change, but there is progress to consider, and small actions add up. As this Greater Good Magazine article points out, one individual can create collective hope.
As citizens we can make lifestyle changes, and as investors we 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 (ESG) 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.
What is ESG?
ESG focuses on principles used to evaluate the sustainability and ethical impact of investments. It is often also called sustainable investing, socially responsible investing, and impact investing. 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. This year the Morgan Stanley Institute for Sustainable Investing published “Sustainable Reality” report showing sustainable funds beat traditional funds in the first half of 2023. Also, a new Kroll study shows stronger investment returns for companies with high ESG ratings.
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 on how your investment affects 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.
ESG Outlook
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.
If you‘re looking to achieve financial goals while creating a more just and sustainable world using socially responsible investing, contact Lindsey at Capstone Investment Financial Group.