Allocating your money, time, and energy to the things that you have chosen as core values is the hallmark of a life well lived. This shows up in almost all decisions like what profession you choose to pursue, who you decided to spend time with, what activities you participate in, and what organizations you spend your free time serving. But most of our clients are unaware of the emerging opportunities to align your investment dollars with the values as well.
ESG is one of the fastest-growing segments of investing, across the spectrum of financial products from ETFs to specialized, custom strategies. This growth makes them much easier to deploy in investment portfolios, and it also ensures that the individual values of the investor can be expressed in a way that can potentially help them meet their financial goals.
What is ESG?
There are three components to ESG. The first two are usually most important to an individual investor, as they connect most directly to values. For institutional investors, the third one plays a role, under the theory that these principles can help to make the company better-run and more responsive to shareholders, which can translate into better financial performance.
Environmental
Is the company an active participant in helping to support sustainability? Companies that support the move away from fossil fuels or participate in other key functions of environmentalism would be examples. But for companies that are not actively promoting sustainability, the question is more about the impact of the business on the environment. This can include everything from carbon footprint, toxic chemicals involved in manufacturing processes, and even how the supply chain is managed.
Social
This used to be more about how workers are treated but has evolved into an understanding of how the company is structured and what the social impact is on the broader community. Companies that embrace diversity and work towards equality in all spheres – even to becoming advocates for social good beyond just their own hiring practices – are becoming the standard. Where companies used to avoid taking public stances on anything likely to be controversial, companies who take a stand are being rewarded, even if those gains are so far just in reputation.
Governance
This is about the company’s board and management. It includes everything from executive pay to diversity in leadership and how responsive a company is to its shareholders. This is where transparency, privacy issues, data security, etc. come into play.
Incorporating your values into your daily life is easier now than it has ever been. One of the measurements for a company’s commitment to ESG is whether the company is a Certified B.
Investing in ESG Companies
There are multiple options for investing with ESG in mind. You can buy into ESG optimized mutual funds or index funds, you can hire a financial advisor that builds and manages ESG portfolios, or you can do it yourself.
If you choose to buy into ESG mutual funds or index funds I would start with a list of the Best ESG Funds from credible source like Nerd Wallet or Forbes. Typically, you can find one that focuses on a specific topic like combating climate change or racial diversity. Building your own ESG portfolio will require you to do more research into annual reports and investor calls to discover which companies are walking the talk. Rating systems like MSCI can give you scores for some of the largest companies to help you start a portfolio.
If you are looking for an advisor to help you create and manage a ESG portfolio be sure that not only do the investments align with your values but also that the type of account and the risk of the portfolio aligns with your families financial goals.
ESG Investing Strategies and its Impact of Your Portfolio
All investments have an impact. The question is do you know the impact of your portfolio and is it in line with the things that you value most. As more transparency and reporting emerges for corporations, we move closer to a landscape where every investor will know and control how their invested dollars shape the world around them.
About The Author
Alchemist Wealth is led by the expertise of Andrew J. Tudor, CFP®, RICP®, CAP® and Fred Tudor III, AFC®, MBA. Alchemist Wealth serves clients as a fiduciary specializing in providing fee-only financial planning, investment management, and retirement planning services. With over 2 decades of combined experience in financial services, Fred and Andrew bring a wealth of knowledge and personalized solutions to meet your financial goals.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
This content not reviewed by FINRA.
