The popularity of environmental, social, and governance (ESG) investments is rising due to various factors. As the supply chain industry becomes more complicated, there’s a wider awareness of human rights, labor, and social risks and issues for the business market.
Because of such concerns and rising environmental issues like climate change, many socially conscious investors aspire and look for ways to improve investments while protecting the planet. And it’s where ESG comes in.
Whereas impact investing in affordable housing provides investors an opportunity to create positive social change and earn attractive returns, ESG investing utilizes specific criteria to measure the investments to know what sustainability must look like. The environmental factors cover the natural world’s conservation, while the social factors include how companies treat people, and governance factors revolve around how companies are run.
If you’re new to ESG investments and want to learn more about them, read the guide below.
An Overview Of ESG Investing
ESG investing is another form of sustainable investing that aims to incorporate governance, environmental, and social factors into investment decision-making. Its primary goal is to manage the risks more efficiently and produce more sustainable and better long-term returns while positively impacting society.
While ESG investing can help investors practice responsible investing, it isn’t the same as impact investing. Compared to ESG, which typically warrants excellent financial returns, impact investing is an investment strategy focusing on generating positive environmental and social change aside from financial gains.
Impact investment may also take the form of countless asset classes and may lead to particular outcomes. The goal of impact investing is to take advantage of investment capital and money for better social results.
Other than impact investing, socially responsible investing (SRI) is another common term that investors may encounter when learning about ESG investments. While both aim to build a responsible investment portfolio, there are some differences investors should know. Since ESG is a set of criteria that measures the investment’s sustainability using environmental, governance, and social factors, socially responsible investing uses an ESG-based grading system to measure financial investments.
Types Of ESG Investments
There are different types of ESG investments, but here are some of the popular options.
- ESG Mutual Funds
Due to the popularity of ESG investing, the number of mutual funds has increased in recent years. Some of these focus on specific issues like green energy to make it easy for investors to personalize their portfolio’s area of impact. These funds are also good for diversifying holdings instantly. However, before choosing ESG mutual funds, comparing them to see how their ratings stack up is crucial.
- ESG Stocks
ESG stocks are the companies that adhere to the high and strict standards of corporate governance, address problems relating to their workers and society, and are responsible for protecting the environment. While they aim to profit, they also want minimal environmental impact.
To identify the ESG companies to invest in, refer to their ESG score. The scores may range from 1-100. The highest ESG score is 100, and a company with a high score is not only a great potential investment. It also highlights that the firm works for society’s betterment.
How To Get Started
Getting started with ESG investing doesn’t have to be complicated. With the different types of ESG investments, investors can choose from various options. Below are the steps to start with ESG investing:
- Choose Whether To Get Help Or Do-It-Yourself (DIY)
To create a portfolio with ESG investments, you should decide whether to do it on your own by choosing particular investments or work with a professional like a financial advisor.
If you prefer the idea of digging for more information about the company’s sustainability initiatives, it’s best to build your portfolio without professional assistance. On the other hand, if you want to find the best ESG investments that align with your goals, you can make things easier with professionals. These expert advisors can help manage and build an ESG investment portfolio based on your goals and risk tolerance.
- Determine Your ESG Criteria
Values may vary widely from one person to another. For this reason, before considering any ESG investment, it’s crucial to determine the values that are most significant to you. Once you know your values, selecting investments you can incorporate into your portfolio is much easier.
- Select The Best ESG Investments For You
Once you know your approach and ESG criteria, the next step is to select the right ESG investments for your portfolio. Some of the known ESG investments are ESG stocks and ESG funds. To make a well-informed decision, read more information about your preferred investments and compare your options to know the difference.
ESG investing is undoubtedly an interesting way to invest your hard-earned money. However, as an investor, you need to dig further before you include it in your investment portfolio. Like with other types of investments, research is the key to making a well-informed decision and protecting your assets.