Investing is one of the main cornerstones of not only The Money Muscle, but all personal finance. Growing your money through investing is imperative if you want to have money to live on when you get old. But one of the biggest problems that people have with investing is that sometimes people don’t want to support companies that don’t align with their values but do so inadvertently through mutual funds, ETFs, and index funds. The way to get around this is through environmental, social, and governance investing (ESG investing). ESG investing is investing in companies that are helping the environment, contributing to social causes, are more diverse, etc. Let me give you a brief overview of (1) what ESG investing is and (2) the importance of ESG investing.
(1) What is ESG Investing?
ESG investing is also called impact investing and socially responsible investing. At its core, ESG investing is investing into companies who take into consideration their impact on social issues, environmental issues, and issues of diversity and inclusion.
This can mean a lot of different things. And to be honest, there is not a clear list or ranking system of a company’s level of social, environmental, or governance impact. So this kind of investing can be a little misleading at times.
For example, a group of companies that are often not included in any ESG investments are oil companies. This is because oil companies are among the largest polluters (both directly and indirectly) in existence. BUT, an oil company might try to scratch the itch of the ESG investor by doing something like donating $10 million to fund green energy research. The problem with that is that the oil company likely spends 100s of billions of dollars for oil production.
There are many companies that you can invest in that are true ESG investment-worthy companies. Also, there are several ESG index funds, mutual funds, and ETFs as well. A simple Google search will show them to you.
(2) Why is ESG Investing important?
It might seem obvious now but ESG investing is important because it gives investors the opportunity to invest in companies that are more closely aligned with their own values. Many younger investors want to support companies that have attributes like:
- Diverse and inclusive workforce
- Diversity among the board and senior leadership
- Low carbon emissions
- Zero water waste
- Community relations
- Human rights
- Livable wages
- Responsible lobbying power
- Etc.
In this day and time, many investors will forgo some of the return on the investment in order to support a company or fund that is doing good things for the world. In my opinion, this is a trend that will continue into the foreseeable future.
Final Thoughts
I really like ESG investing. But with full disclosure, I did not know that it even existed until about two years ago. Because of this, my ESG investments are quite small as a portion of my overall portfolio. However, I am in the process of slowing down my investing into non-ESG companies and ramping up my ESG investments in the following couple years.
I would like to eventually have all of my stock investments in ESG companies. 🙂
After all, we only have one world and we only live once. Let’s try to make the best of it and leave it for our children in the best way possible.
Sappy, I know. But that is how I feel.
Until next time!
0 Comments