Environmental, Social and Governance

Updated April 11, 2023

What you need to know about ESG Investing  

If you’ve got an ear for financial news, you’ve probably been hearing a lot about ESG investing.  ESG investing is an investing strategy that prioritizes a corporation’s environmental commitment, social impact and governance issues in the hopes of building an ethical portfolio.  So what factors are at play when determining a company’s social responsibility?

Let’s break it down. 

Environment (E) ratings judge a company’s sustainability.  Factors like carbon emissions, deforestation, waste management or green energy initiatives help determine a corporation’s impact on the environment. 

Social (S) criteria looks at a company’s social impact, including its commitment to diversity, fair labor standards or sexual harassment policies.  Social components also include how a company facilitates change outside its walls and works for good in the greater world around them. 

Lastly, Governance (G) is determined by a company’s management.  Governance might look at political contributions, diversity of board members and fairness of executive pay.  ESG research firms calculate scores on a 100-point scale based on all of the above criteria to help investors make an impact with their dollars. 

Investors can help their money do double duty by investing in companies that serve the interests of all five of their stakeholders, including workers, communities, customers, shareholders and the environment, alike. 

Why ESG Investing matters 

Today’s investors care about more than just the bottom line.  90% of millennial investors aim to align their investment portfolios with their core values.  The Covid-19 pandemic also fueled interest in ethical investing, as investors with more time on their hands sought to put dollars behind companies committed to social activism and sustainability. 

What’s more, not only is ESG investing good for the conscious, but ESG funds are typically less risky and even tend to outperform the market.  Investors are hopping on the ESG bandwagon at a record pace, and ESG investing jumped nearly 100% between 2019 and 2020.  ESG assets could reach $50 million by 2025, a full third of total global assets under management.  

Extra Credit 

It’s not only the equity markets and investors focused on the green train, the credit markets are also jumping aboard.  In a $2 billion bond deal, Walmart just issued the largest green bond in the U.S. market in an effort to fund a range of environmental efforts.  

Would you consider a company’s environmental and social agenda before investing?