Do You Know About ESG Investing? Investments as Social Activism

Do you want your investments to support companies with an eye on the greater good as well as their bottom lines?

Chances are you’ve thought about how you spend your money, and not just in the sense of budgeting. Do you care about the values of the companies from which you buy products and services at the checkout line? You might want to consider them in your investment portfolio.

Investing strategies and investments that consider factors like sustainability, workplace equality, and political impact are often called ESG (environmental, social, and governance) or SRI (sustainable, responsible, and impact).

ESG, SRI, What’s the difference?

ESG = Environmental, Social, and Governance
SRI = Sustainable, Responsible, and Impact

Both of these categories focus on similar factors. The main distinction is that ESG investing is often based on inclusionary screens, while SRI investing is based on exclusionary screens.

Screens are how an investment is included or excluded from a portfolio or fund. If a company is creating an index, they can chose to include and exclude certain investments based on a number of factors.

If an investment or index wants to focus on sustainability? That’s an inclusionary screen. If it wants to avoid companies that have a bad track record with workplace equality? That’s an exclusionary screen.

Some factors that are considered in order for something to qualify as an ESG investment:

Environmental: Resource utilization, sustainability office, environmental impact
Social: Corporate philanthropy, working conditions, progressive and inclusive HR policies
Governance: Reporting and disclosure, product recalls, balance of powers

Investing strategies and investments that consider factors like sustainability, workplace equality, and political impact are often called ESG or SRI.

Who is ESG investing for?

In 2015, Forbes partnered with the news site Elite Daily to conduct a Millennial Consumer Study. The data revealed that 75% of Millennials think that “it’s either fairly or very important that a company gives back to society instead of just making a profit.”

A 2015 TIAA Survey found that 90% of Millennials agreed that “I’d like my investments to deliver competitive returns while promoting positive social and environmental outcomes.”

The survey also indicated that 76% of Millennials care more about having a positive impact on society than doing well financially. (Only 42% of non-Millennials felt similarly.)

A recent Morgan Stanley survey found that 84% of millennial investors are interested in sustainable investing. It also stated that, “female investors are more likely to factor sustainability into their investment decisions and are more likely to see the advantages of doing so.”

But it’s not only Millennials that seem to prioritize these factors.

While the aforementioned survey made it clear that almost all Millennials are down with ESG, it also found that 71% of all investors surveyed were interested in some form of sustainable investing.

Interestingly, Europe is leading the charge when it comes to ESG investing. In 2014, “58.8% of European invested assets already are invested in a sustainable way, compared to 31.3% in Canada and 17.9% in the United States*.”

Do I have to sacrifice returns?

While every fund is different and has risks that must be weighed on a case-by-case basis, many leaders in the investment field are optimistic about ESG investing.

“Over time, high ESG scores tend to result in positive effects on investment performance,” Sharon French, head of Beta Solutions of OppenheimerFunds, wrote on the company’s blog last month  “It’s not only about changing the world, it’s about understanding how the world is changing.”

Morningstar, a provider of independent investment research, dedicated their entire December/January issue to sustainable investing: “Sustainable Investing Takes Off.”

Jon Hale, Morningstar’s director of manager research in North America affirmed that, “…there is little evidence indicating a performance penalty for sustainable investing, particularly among mutual funds.”

“I believe that investing itself is a socially conscious act. It means deferring gratification today for greater security and opportunity for yourself and your loved ones tomorrow.” – Don Phillips, managing director for Morningstar.

ESG investing on Stash

Excited about investments that focus on sustainability and social responsibility? There are options available to you on Stash:

Do the Right Thing is an ETF that tracks an index that is based on ESG factors. The fund is called iShares MSCI USA ESG Select ETF.

Check out the investment profile and the fund website to learn more.

Other resources:

Impact Investing: The Performance Realities
SRI and ESG – Is there a difference?



Footnotes
* Morningstar Magazine December 2015/January 2016 issue.




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