Environmental, social, and governance (ESG) investing is becoming more important to many investors, who wish to interweave theircore values with financial growth.
However, it can be complex to find the best investment opportunities, alongside explicit social and environmental considerations.
Read on, to learn more about what ESG investing is, how it can be done and why it can be beneficial.
What is ESG investing?
ESG investing, as mentioned above, stands for environmental, social, and governance investing, and includes investments in companies which are having a positive impact in these three key areas:
Environmental – This refers to how well a company contributes to preserving the natural world and fights climate change, consideringtheir waste and pollution, greenhouse gas emissions, and how their operations affect nature.
Social – This refers to how a company creates a socially positive environment for the business and customers alike. This can include the working conditions, how diverse the company in, and their policies on health and safety, and slave labour.
Governance –This refers to how ethical the company is in the way it’s governed. For instance, how well the company complies with laws and regulations, what their business ethics are, and whether they’ve been involved with any corruption or bribery.
In order to know how effective each company is at providing positive change in these areas, you can refer to their ESG rating.
There’s no one standardised metric for ESG, but the most commonly referenced is the Morgan Stanley Capital International(MSCI) ESG score for companies.
As such, we highly suggest speaking to your chosen wealth managers if you’re considering this particular form of investing.
Why should you consider ESG investing?
There are many benefits of ESG investing. These include, but are not limited to:
- Investments aligned with your values
ESG investments give you the opportunity to not only grow your wealth, but also maintain and reflect your core values.
In addition, with expert wealth managers to guide you, you can gain exposure to a diversified range of investments with the right ESG ratings, which do not compromise on the potential for sufficient returns.
- Increased investment diversification
Another major benefit of ESG investing, is that it can help you to diversify your investment portfolio, and explore potentially profitable opportunities you may not get elsewhere.
When executing only one form of investing, you could be missing out on the many benefits of other investment types – such as ESG.
In addition, any factors which might negatively impact a single investment type or sector, will then affect your entire portfolio.
By diversifying your portfolio with ESG investing, youcan have investments in a range of other securities which can remain unimpacted during drastic changes to other industries.
- More investment opportunities
ESG investing not only aligns with your values to bring about change, but this type ofinvestment strategy can also be beneficial for building wealth in the future.
Many investors believe that investments in companies with a high ESG rating, are some ofthe most reliable investments to make, as these businesses can adapt quicker to societal, environmental and economic shifts.
Many argue that these companies are forward-thinking, and as more people invest in them, they’ll continue to grow and become more prominent in the financial world.
Therefore, investing in these companies can be an effective way of increasing your wealth resilience.
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Please note, the value of your investments can go down as well as up.
