Have you ever felt like you had to choose between your values and making money?
If so, I have good news for you. To quote Bob Dylan, “The times, they are a-changing.”
Recent research shows you can earn competitive returns by investing in companies that are making a positive difference in the world. But keep your eyes wide open, because there’s some things to watch out for, too.
As an investor, you may have had times when you were invested in an oil or tobacco stock and felt badly about it.
Or maybe you invested in a Socially Responsible Investment Fund, which allowed you to support businesses that reflected your values…but in many cases you had to sacrifice investment returns to achieve these personal goals.
Here’s where it gets exciting.
A new style of investing called ESG has come on the scene. ESG stands for Environmental, Social, and Governance Investing. Instead of being an end in itself, ESG simply involves adding another screen when you select investments.
So along with evaluating a company’s financials, you also evaluate its environmental, social and governance policies. Those can range from climate change to human rights to commitment to diversity.
What’s exciting is that research suggests that choosing investments that rank higher for ESG is not only matching traditional index performance…its sometimes beating them!
So this time around, ESG has the investing world’s attention.
As a financial analyst at heart, I see it from another perspective as well:
Companies that proactively embrace forward thinking are the ones most likely to adapt and thrive.
Institutional managers see that too.
Last year BlackRock, the biggest money manager in the world, stated that it will evaluate all of its investments through an ESG lens.
And BlackRock is not alone … trillions of investment dollars will be managed this way … which means that the private sector is going to offer lots of products that demand more from the world’s corporations.
So that’s all good.
Of course, with the good comes the bad, as there’s a lot at stake. So you need to watch out for something called “greenwashing” which can make an investment look more attractive to ESG standards than it really is.
I believe this ESG trend is here to stay, but you’ve got to make sure that you use the best possible strategies so you’re not falling victim to the latest fad for your investments.
First, you need to understand what and how much you want to achieve with your investment strategy.
Then go out and find the financial product that most closely matches your objectives.
Remember, fundamentals are still as important as ever, so don’t ever be steered away from that aspect traditional research.
I believe that we are in a golden age for financial services and people should expect that their portfolio can be dialed in to both their investment & personal objectives.
If you’re interested in discussing how ESG investing can fit into your overall investment strategy… just reach out and let’s get to work.