How generational and societal change is influencing companies and the markets.
ESG: what does that acronym stand for?
Those three letters stand for “Environmental, Social, and Governance”. You may recall how the phrase “socially responsible investing” became part of the stock market vocabulary a generation ago. Socially responsible investing (SRI) was often about not investing in certain companies – businesses whose products or services seemed distasteful to this or that investor. ESG investing focuses more on corporate behavior. Is a corporation managing natural resources sustainably? Does it treat workers well? Is its culture inclusive and diverse?
Many a well-educated, socially conscious, environmentally friendly investor winds up buying shares of companies whose beliefs and business practices are far removed from their own. Why? Often investors simply haven’t thought about merging their personal beliefs with their investment strategies. Some may not even be aware of where and how their money is invested.
Is it that big of a deal?
Only you can answer that. For some it is, and for others it isn’t. What matters to you may not matter to the next guy, and vice versa. But consider this – when you invest in a company, you own part of that company. Some investors would prefer to separate themselves from their investments, while others are unable to do so. What you may need to consider is, based on what the company does and how they conduct business, whether you would feel comfortable being a partial owner of that company.
Voting with your wallet.
How we invest or don’t invest our money can be a significant statement of our beliefs and personal principles. For example, if someone is strongly opposed to gambling or tobacco, they could choose not to invest in any company that contributes to those industries. If everyone who opposed those industries sold (or didn’t purchase) shares from those companies, that could potentially send a powerful message. On the flip side, if someone firmly believes in eco-friendly alternative energy sources, they could choose to invest in wind farms rather than big oil (for example) as a way to show their support.
Some corporations now include ESG metrics in financial and annual reports.
This is more than a nod to investors; it represents a trend in corporate communication and behavior.
Philosophically, ESG investing asks two questions:
An ESG investing proponent’s answers may differ significantly from those of an investor uncompelled by the ESG approach.
- Should social responsibility matter more than a company’s financials when you are considering an investment?
- Can positive environmental and social news about a corporation influence its stock’s value more than its earnings and guidance?
If you want to explore the world of ESG investing, please contact us for the insight and information that can help you identify your choices.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.