With increasing pressure to be more responsible for how we treat ourselves, others, and the world, the financial industry is keeping up with this trend. ESG investing has become an increasingly popular option among many investors as a way for their funds to contribute to a greater good. The letters ESG stand for economic, social, and governance. When investors utilize this strategy, they examine stock based on this criterion. While this may appear to be a tedious task, talking with your financial advisor about ESG is a great way to get started.
E – Environmental
This component of ESG evaluates various actions a firm may take that either positively or negatively impact the environment. Companies that are actively working towards improving their operations to better the world may be an option for investing. Several topics to analyze is a firm’s climate change policies, greenhouse gas emission goals, carbon footprint, recycling, and renewable energy. While this information may be difficult to find, there are agencies such as the Global Reporting Initiative (GRI) and Principles for Responsible Investment (PRI) that can assist in locating this information.
S – Social
The social component of ESG encompasses people-related features, such as company culture, internal and external partners, and consumers. Essentially this evaluates how the firm treats people. This information can also be found in the GRI and PRI reports. Aspects that are included in the social segment of ESG include employee treatment, gender ratios, staff turnover, employee safety, sexual harassment prevention, as well as public stance on social justice.
G – Governance
The governance aspect evaluates the board of directors and how/if the board relates to various shareholders. This information can generally be found in the firm’s proxy statement. These are generally introduced during annual meetings where shareholders are able to vote on various issues and topics. Several of these topics include executive compensation, diversity of board members, transparency when communicating with shareholders, and voting of directors.
Ethical investing has come a long way since it’s introduction in the 1970’s. As the world continues to mature, we must do our part to make a difference. ESG investing is a way to not only benefit you, but also benefit the world.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through GWM Advisors, a registered investment advisor. GWM Advisors and Southern Point Investment Partners are separate entities from LPL Financial