The ultimate goal of investing is to make a return on your money. The reason the return is important is unique for each of us. Maybe you want to retire, pay for your child’s college or leave a legacy.
Whatever your goal may be, performance on your investments is usually top of mind. If you were told you could align your investments with your values without sacrificing performance, how would that sound? Unfortunately, too few investors are being given this option. It takes time and intention to talk about sustainability or ESG investing. I think it’s worth taking a few minutes to talk about it. I believe clients appreciate knowing their hard-earned dollars could be invested in companies that are encouraged to take steps to do the right thing for our environment and society.
If you’re like me, I am frustrated by acronyms. So what exactly does ESG mean?
- Environmental: water scarcity, clean energy, waste and pollution.
- Social: human rights, diversity, cybersecurity.
- Governance: transparency, corruption, business ethics.
When you invest in an ESG portfolio, they screen for companies that either positively impact the environment and society or screen to exclude companies that harm the environment and society.
It’s not just about feeling good. Beyond achieving the confidence that your investments have a positive impact, your ESG investments may outperform traditional portfolios. Factors are playing into why these companies may outperform, ranging from attracting and retaining better human capital to sourcing resources using sustainable means. There is a growing belief that companies that ignore ESG factors may become vulnerable to increased regulation or be required to pay punitive fines to governments.
I have been focusing more on conversations around ESG investing options over the past two years after attending a conference where they were educating a group of advisers about how ESG funds try to impact companies positively. I thought it was great how they focus on climate control. I mean, I care that the glaciers are melting. They talked about data security. OK, yes, I don’t want my information hacked or shared without my permission. Promotion of ethical business practice, of course, I am 100% on board with that.
So I thought, I’ll give ESG a look one day, maybe. They mention diversity on boards of directors and how so many are still all white males — right here in the United States of America. Companies that are listed on the S&P 500. Don’t they have women on their board? People of other nationalities? Then they went on to mention how they work to narrow the gender pay gap.
Being a female financial adviser in an industry 90% dominated by males, these are topics that hit me close to home. Maybe you are just as passionate about some of the many other environmental, social, or governance issues in society they are working to improve.
In conclusion, invest with a purpose, and do a little good in the world along the way. That’s ESG investing.
Deena Wright is associate vice president, wealth management at SWK Financial Planning Advisors of Raymond James in Fayetteville. She can be reached at 479-435-9955. The opinions expressed are those of the author.