ESG Investing: Contribute to the Greater Good
Long before it was called ESG (environmental, social, and corporate governance) investors were calculating ESG risks.
- Raw material costs, pollution controls, and environmental lawsuits are now called environmental factors.
- Labor disputes and human rights violations are now social risks.
- Executive pay and board independence is called governance.
ESG is nothing new. It has developed into its own category of investing because of the systematic way investors are now using it. New research firms have sprung up and traditional firms have added resources to deliver the quantity and quality of the data that makes ESG investing possible.
There is no universal consensus as to the actual definition of ‘sustainable’ investing leaving many people confused. As it is with conventional investing strategies, ESG strategies as aim to maximize financial return for the risk taken. They put financial return first, before any other issues addressed, although ESG strategies do so by favoring companies with strong and/or improving ESG profiles.
Simply put - ESG integration is the inclusion of environmental, social, and governance risks and opportunities into traditional financial analysis based on a systematic approach and appropriate research sources. ESG integration allows investors to evaluate costs of natural resources that companies use and/or produce such as water, pollution, waste and deforestation.
Traditional security selection relies on fundamental ratios like price to earnings or book to market. ESG integration does that as well, but adds the environmental, social and governance factors into that analysis. How? It requires collecting additional data. Portfolio managers will buy ESG scores from large data providers, obtain it from in-house ESG analysts or conduct their own fundamental research that integrates ESG factors. ESG integration supplies an enhanced analysis of companies by giving the manager a better understanding of the overall risk.
We now have the ability to earn decent if not stellar returns, while contributing to the greater good and/or causing less harm.
ESG integration is an innovative investment strategy that is enabling us to invest for sustainability. It’s a mistake to think that ESG investing requires an entirely new process resulting in different asset allocation and an entirely new portfolio. That is no longer the case. We can maintain our risk and return profile and asset allocation and simply swap our mutual funds by replacing them with ESG funds in the same asset class.
Copper Leaf Financial has access to the research and data required to help you successfully integrate ESG into your existing portfolio so that you can align your sustainability goals with your financial return goals. We work with you to develop a plan that is customized for you based on your financial and personal goals. A detailed plan can help maximize the wealth you share with future generations and causes most important to you.
Let’s get started! Call us today at (802) 878-2731 or click here to schedule a complimentary review of your current portfolio.
For more information about ESG investing please review the white paper: “Sustainable Investing: From Niche to Normal”.