What is ESG investing?

We often talk about different ways to invest and the best way to make the “biggest bang for your buck” but what about the people that want to ensure their values align with the company they invest in? Well, ESG investing may be your answer. ESG stands for environmental, social, and governance - the intention of ESG investing is to align finance with long-term value and societal values. In fact, ESG investing has grown in popularity over the past decade and by the end of 2019, the sustainable market size increased more than 30% compared to 2016 with total assets exceeding 30 trillion USD.

Each pillar of ESG signifies a different purpose. For instance, the environmental (E) pillar strives to integrate metrics aligned with environmental performance, climate risk mitigation, and strategies towards renewable energy. A company's carbon footprint is only one metric considered when measuring its environmental impact - others may include waste production, energy use, and water withdrawals. The social (S) pillar values social responsibility ranging from workforce related issues (health, diversity, training) to societal issues as a whole (human rights, data privacy, community engagement). Whereas governance (G) focuses on factors surrounding corporate governance and corporate behaviors, ranging from shareholders’ rights to executive compensations.

Right now, the most difficult part of ESG investing is the quality of information and comparing different companies. Yahoo Finance provides free information on most tickers under the “Sustainability” tab where the lower scores indicate less unmanaged risk within the company. Of course this information is helpful but take time to research the company beyond these simple features or book your appointment with KJ Dykema, MRFC® to help evaluate your investments further.

Resources

OECD (2020). OECD Business and Finance Outlook 2020: Sustainable and Resilient Finance, OECD Publishing, Paris, https://doi.org/10.1787/eb61fd29-en.