The world of investing is home to hundreds of seemingly complex vocabulary terms. Which at first sight, can be a real turn off. Unfortunately, ESG Funds are one of those words, despite how beneficial they are. To make matters worse, any quality information you can find on ESG Funds seems to be buried under mountains of complicated academic text. Talk about #TLDR.
You deserve better. So, we’ve broken down ESG Funds to their barebone basics and hopefully have taken away some of their intimidation factors.
Let’s get started, shall we?
WTH is ESG
We know what you’re thinking, what does ESG even stand for? Even the name itself already seems like a hassle. Let’s face it, who has the brain space left to learn and memorize another financial acronym?? Not me. But regardless, it’s good foundational knowledge to have at least peeked at. Here is what ESG actually stands for:
When you break it down like that, it’s really not that scary. Now there are other names people like to use when talking about ESG funds, like sustainable investing. However, this is really just a huge blanket term that covers a lot more than ESG Funds. So, to give some specific background on ESG Funds, let’s take a look at what factors are listed under each of the three categories. Knowing what qualities make up each category provides a little more insight on what criteria are used to classify different kinds of ESG investments.
This category handles topics like; climate change policies, plans, and disclosures. It also covers the usage of renewable energy (including wind and solar) as well as green products, technologies, and infrastructure.
This second category primarily covers company policies on social issues like; employee treatment, pay, benefits, and perks. It also includes a company’s public stance on social justice issues/lobbying efforts and their stance on diversity and inclusion in company hiring.
This category also seems to be pretty self-explanatory. It includes factors like executive compensation, bonuses, and perks. The level of diversity of the board of directors and management team and a company’s transparency in communicating with shareholders, and any history of lawsuits.
What is the goal of ESG Investing?
In case we lost you at any point, let us be really clear. Essentially ESG Funds aka ESG Mutual Funds, are one style of investing that takes into account which companies will yield good financial returns and are actively doing work to benefit one or more of the three-letter categories.
So not only are you taking initiative to financially plan for your future, but you can rest a little easier knowing that your hard-earned dollars aren’t going to a super sleazeball company with no moral compass or standard of ethics.
There are other ways of aligning your investments with your values of course. For example, you can opt for a Socially Responsible Investment (SRI) strategy to filter out bad companies and using what’s leftover to determine who the good guys are. We’ll talk about this more in another blog post.
One thing you should know is that ESG Investing is a little more forgiving. It sees the glass half full and looks for the good that businesses are doing rather than focusing on their shortcomings. However, different strategies work for different people, and although these two investment strategies take different roads, their purpose falls within the same vicinity.
Still don’t get it? Let’s Chat IRL.
There is a whole other level of information we could try to inject you with, but we’re going to opt for the short and sweet style of things this time around. Of course, if you are dying to learn more or want us to give your investment strategy a look-see, don’t hesitate to reach out to us! Although in-person meetings have been stifled recently due to the global pandemic, we’d love to have a real conversation with you talk face to face (aka face to screen). Bottom line is, we’re eager to meet ya and teach ya even more about the intricacies of the investment world that we call home.