One fun thing that we’re doing at Merino Wealth is helping our clients invest in ESG (Environmental, Social, and Governance) investments or what’s sometimes referred to as socially responsible investment vehicles. In 2015 the Morgan Stanley Institute of Sustainable Investing conducted a survey and found that 71% of individual investors are interested in sustainable investing.(1) More and more I’m finding that consumers are voting with their dollars, so it makes perfect sense to want to invest in a manner that aligns with your values.
Between the approaching year-end paired with current stock market highs I think now’s a great time to review your investment strategy including what you’re invested in. So this month I’ll be sharing some things to consider if you want to be a responsible investor. Before considering any investment strategy though it’s important to educate yourself on the topic at hand. So let’s start today with some definitions…
First, I’d like to start with what ESG investing means. This is a common term that has evolved in recent years to address the general approach of investing in a responsible/sustainable manner.
E stands for Environmental. This includes addressing issues like climate change, air pollution, waste, water pollution, and deforestation.
S stands for Social. This includes human rights issues including labor standards, diversity, and community relations.
G stands for Governance. This applies to how the organization is governed including issues like board composition, corruption policies, and lobbying activities.
Second, there are a lot of other terms that are used when it comes to ESG investing so let’s address some of the other commonly used terms.
Socially Responsible Investing (SRI): traditionally focused on exclusionary screening to ensure a portfolio reflected the values of an investor.(2)
Impact investing: targeted investments aimed at solving social or environmental problems.(3)
Sustainable Investing: commonly used as an overarching term to describe the objective of ESG analysis.(4)
Gender Lens investing: subset of ESG investing which incorporates a strategy to invest in companies that have high percentages of women in leadership roles.
Third, we can learn the language of some ways in which ESG investing is incorporated:
Positive/best-in-class screening: investment in sectors, companies or projects selected for positive ESG performance relative to industry peers. This also includes avoiding companies that do not meet certain ESG performance thresholds.(5)
Negative/exclusionary screening: The exclusion from a fund or plan of certain sectors or companies involved in activities deemed unacceptable or controversial.(6)
Now that we have a handle on what ESG investing is and what it isn’t we can start considering some strategies to help us invest more responsibly. Stay tuned for more info!
Are you ready to take inventory of how you’re invested, but maybe you’re not sure where to start? Or maybe you want to know if you should consider implementing ESG strategies into your portfolio? CLICK HERE to schedule a complimentary phone consult to see if we can help.
1. The Morningstar Sustainable Investing Handbook https://www.morningstar.com/company/sustainability
2. The Morningstar Sustainable Investing Handbook https://www.morningstar.com/company/sustainability
3. The Forum for Sustainable and Responsible Investment (https://www.ussif.org/esg)
4. The Morningstar Sustainable Investing Handbook https://www.morningstar.com/company/sustainability
5. The Forum for Sustainable and Responsible Investment (https://www.ussif.org/esg)
6. The Forum for Sustainable and Responsible Investment (https://www.ussif.org/esg)
The views expressed today are my own and do not necessarily represent the views of my broker/dealer, The Investment Center, Inc. or my Registered Investment Advisor, IC Advisory Services, Inc.
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