by Karen Telleen-Lawton, Noozhawk Columnist (read the original in Noozhawk by clicking here)
Socially responsible investing (SRI) has been around since before 1980. SRI has broadened in the last decade or so and taken on a new name.
ESG investing refers to investment analysis which examines the sustainability and ethical impact of an investment as one measure of future risk and return. ESG investors want to know their money is a positive force in the world, but they don’t want to sacrifice return.
Can you have your ESG cake and eat it, too? Take this investing quiz to find out whether you want to include ESG among your investing goals. Answers follow.
ESG stands for:
Extra Savings Growth
Essential Swinging Gate
Environmental Social and Governance
Early Savings Grant
ESG investing
Attempts to do well by doing good.
Always performs better than investing without considering ESG criteria.
Uses a standard set of criteria to screen in and out certain companies.
A and C.
A good way to invest in ESG is to
Find one company on a list of “green companies” and put all your investments there.
Find an ETF on a list of “green ETFs” and put all your investments there.
Put a little into each green ETF.
Study highly rated ETFs and choose a few that cover a range of industry sectors.
Diversification
Isn’t necessary for ESG investors because ESG companies are so safe.
Is impossible because there are no ESG bonds.
Is important even if you can’t find what you want in ESG.
Refers to hiring minorities in executive positions.
ESG investment objectives
Are standardized and available on any ESG site.
Are necessary for portfolio managers but not for investors.
Vary from renewable energy to avoiding guns and war profit to minority hiring practices.
Are too diverse to make ESG worth trying to do.
Finding the right ESG investment
Means finding a financial advisor who agrees with all of your goals.
Means accepting a lower rate of return.
Means applying enough filters that you are left with just one possibility.
Means defining your own objectives and finding investments that are reasonable matches.
ESG investing
Is still pretty rare today.
Can be done by purchasing stock but not mutual funds/ETFs.
Can be done by purchasing mutual funds/ETFs but not stocks.
Comprises more than one-quarter of all assets under management globally.
In an analysis of ESG-weighted portfolios from 2014-18, ESG-weighted portfolios
Performed commensurately with non-ESG-weighted ones.
Outperformed non-ESG-weighted portfolios by 1-2 percentage points.
Underperformed non-ESG-weighted portfolios by 1-2 percentage points.
Could not be compared because ESG was not yet defined.
Answers and discussion:
C. ESG investing attempts to mitigate the risks associated with environmental, social, and corporate governance issues.
A. ESG investors are interested in aligning their investments with their value. There is no standard set of criteria, nor is there any guarantee of performance.
D. As with all investing, it is important to research the company or the fund, and to diversify.
C. It’s important to allocate your investments across large- and small-cap vehicles, foreign and domestic, and fixed income, even if you can’t find what you want in an ESG investment.
C. ESG investors and ESG funds have a wide variety of goals. It is likely you can find a fund whose goals align with yours.
D. The most important step in ESG investing is defining your objectives. A financial advisor can help you find reasonable matches for various types of goals. ESG investors do not have to accept a lower rate of return.
D. ESG investments are available for stocks, mutual funds, ETFs and bonds. They now comprise over a quarter of all assets managed worldwide.
B. A risk and portfolio analytics firm found the majority of portfolios weighted in favor of high ESG-ranked companies outperformed their benchmarks by between 81 and 243 basis points.
Karen Telleen-Lawton, Noozhawk Columnist
Karen Telleen-Lawton is an eco-writer, sharing information and insights about economics and ecology, finances and the environment. Having recently retired from financial planning and advising, she spends more time exploring the outdoors — and reading and writing about it. The opinions expressed are her own.