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Environmental Social and Governance Investing

The current trend toward sustainable investing means maintaining the status quo is not an option. As interest in sustainable investing grows, it's vital for investors to understand what sustainable investing is and how they can benefit from this evolution in the industry.


The acronym ESG stands for Environmental Social Governance.

Other names for ESG investing are:

  • Sustainable investing
  • Impact investing
  • Socially responsible investing

ESG investing utilizes strategies that highlight companies with stated commitments to one or more ESG priorities. Here are a few ways companies practice ESG:

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Environmental

A company with an environmental focus factors their impact on the environment. Such a company might aim to reduce their pollution output, energy consumption, or factor in the risks of climate change on the company and industry.

Social

Companies with a social component heavily factor the company's connections with people, society and the population as a whole. These companies may incorporate particular faith-based issues, human rights, diversity, or health and safety concerns in their ethos. Social factors may extend to the company's relationships with other businesses and even throughout its supply chain.

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Governance

The focus on a company's governance refers to the leadership of the company. A company with a stated commitment to ethics and transparency, for example, may fall under the governance component of an ESG. Governance may also include a company's dedication to shareholder rights and the roles of the board of directors.

One of the primary reasons why people ask about ESG investing is because it's become a big investing trend. However, dig a little deeper and ESGs become less like a trend and more like an investing evolution.


In theory, the thinking behind investing in an ESG is simple. An investor shouldn't have to sacrifice moral principles to make money. Lining up personal morals with investment choices is referred to as investing with a conscience. But, in the end, ESG investing is vital for a changing world.

ESG investing instruments allow investors to connect with companies that look toward the future. These companies must think outside the box to mitigate future risks and foster sustainability, making them less likely to remain stagnant.

Companies who truly integrate ESG policies into their business are also more likely to voluntarily report ESG metrics and goals via annual reports or sustainability reports. In short, ESG companies have greater accountability to their stakeholders and shareholders.

The ultimate question is whether ESG stocks are competitive. The answer is yes, and they are inherently so. Companies that adapt to changing socio-economic and environmental conditions are more likely to spot opportunities for growth and identify challenges. They understand that the world is changing quickly, and ESG stocks have the capacity to pivot in the right direction.

Many investment firms currently incorporate ESG evaluations into their risk assessments for portfolios. Both individual and institutional investors are choosing to invest in companies that have ESG policies, with room for demand, thus increasing their competitive value. Access to capital will increase for companies with solid ESG policies.

Along with competitiveness, ESG investments have even more benefits to consider. Fresh talent, for example, gravitates toward companies with ESG policies. Millennials typically choose companies that align with their morals, therefore they tend to choose ESG businesses. What's more, millennials who are passionate about their work are more likely to remain loyal to the company. This pool of new talent adds to the long-term sustainability of a company.

ESG investing also makes for a stronger company and a more solid investment. Values-based investors are more apt to avoid investments that simply flip stock. Rather, they see well into the future and understand that change takes time. ESG investing is projected to grow in popularity in the next decade. Let Northbound Wealth Management help you determine if ESG investing is right for your portfolio.

Interested In ESG?

We would love to talk more with you about how to get involved in this new and unique kind of investing.



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