Most people will prefer to make a difference to help society and humanity when they are given the option to do so. This is also true for how a person goes about investing their hard-earned money. Doing so would entail attempting to discern which investment options would be the most sustainable.
However, it can be difficult to really pin down exactly what “sustainable” means when it comes to investing. This is why the financial industry has developed a concept known as ESG which stands for environmental, social and governance. ESG provides investors with particular criteria in order to determine sustainability for an investment.
What exactly does ESG mean?
The ESG acronym refers to non-financial considerations investors can use to evaluate a potential investment’s sustainability and impact on society. Environmental factors affect how a company or investment impacts the natural world. Looking at an investment’s social factors considers how it affects people. Governance factors take into consideration how a company or investment is operated.
Some of the things ESG investors look at when considering environmental effects will include carbon emissions, deforestation and pollution of air and water. Waste management and water usage are also important aspects to consider. Whether or not a company has adopted any green initiatives should be looked at as well.
Determining how a company or potential investment impacts society will require analyzing a variety of aspects. Diversity is usually a major factor considered. ESG investors will look to see if a company’s workforce has an adequate amount of gender and racial diversity. You may even want to take a look at the company’s sexual harassment policies.
Fair labor practices and human rights are other factors ESG investors will want to take into consideration. Customer satisfaction and data security are also important.
How a company is structured and operated is important for ESG investors. Many will look at the gender and racial diversity of a company’s corporate board. Additionally, ESG investors will look at executive compensation in comparison to the rest of the workforce. Signs of internal corruption can be a red flag as well for ESG investors.
Political contributions made by the company and its executives may play a role in an ESG analysis. A company’s relationship with lobbyists can also be important.
Should you implement ESG investing?
Your own personal values, available capital and financial objectives will play a role in determining to what extent you will want to be involved in ESG investing. Plenty of research will also be required to analyze each company and potential investment to see if it meets your own ESG requirements. This can be time consuming and challenging for those who do not have expert knowledge and experience in financial markets. Let us help you determine what ESG investments and portfolios are a good fit for you.