Insights

2 good reasons to become an ESG investor — and 1 reason you shouldn’t

Support your passions, but make sure you’re aware of the full picture.
The post 2 good reasons to become an ESG investor — and 1 reason you shouldn’t appeared first on The Motley Fool Australia. –

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

ESG investing — which stands for environmental, social, and corporate governance — gives investors a chance to look at companies from a different viewpoint. Traditionally, a lot of investment decisions were based solely on a company’s financials, but ESG investing looks past the numbers and into a company’s role in society. By no means does ESG investing mean ignoring a company’s financials and conventional investment wisdom, but those aren’t the only factors in ESG investing decisions.

Here’s a quick look at the components of ESG:

The environmental portion of ESG investing focuses on a company’s current role in contributing to environmental problems, as well as its commitment to addressing imminent issues like climate change.
When you examine a company on its social standing, you pay attention to how it interacts with employees, customers, and the outside community, which may not impact its bottom line.
Governance focuses on transparency, compliance, and truthfulness regarding finances and operations.

Here are two reasons you should become an ESG investor and one reason you shouldn’t.

1. You can invest in companies that align with your values

ESG investing allows you to make sure you’re putting your money into companies that align with your values. The main purpose of investing is to make money, but your personal values and financial goals don’t have to be mutually exclusive. Just because a company is committed to operating with high ESG standards doesn’t mean it can’t do so profitably. 

If you’re passionate about fighting climate change, for example, you have the chance to invest in companies making strides in renewable energy and green operations. If you’ve been a victim of a data leak, you may feel strongly about customer data privacy and focus on companies in cybersecurity. Whatever the case, you can make sure your money is going toward companies aiming to positively impact things you care about.

2. You can invest in ESG-themed funds

Luckily for investors, more funds are increasingly being put together that are focused on particular themes of ESG investing. With more than 600 ESG funds in the U.S., if you care about an ESG cause, there’s likely a fund specific to it. You can also choose not to focus on issue-specific funds and invest in funds covering all ESG aspects as a whole.

For example, the iShares ESG Aware MSCI USA ETF (NASDAQ: ESGU), the second-largest ESG fund by assets under management, contains mid- and large-cap stocks of U.S. companies that “have positive environmental, social, and governance characteristics,” and has the highest MSCI ESG fund rating possible. If you don’t want to be limited to just the U.S., there are also international funds for you, like the Vanguard ESG International Stock ETF (NYSEMKT: VSGX), which contains companies of all sizes from non-U.S. countries.

Some ESG funds may seem contradictory

One thing that may stick out when you’re looking into ESG funds is that some of the companies the ESG fund invests in don’t seem to fit its objectives. This is generally due to one of two reasons. First, there’s no universal method for selecting companies for ESG funds; some funds consider all three aspects of ESG, some consider two aspects, and some may only consider one. If an ESG fund is considering one aspect and a company fits the criteria while having a bad standing on the other two, it could still be included.

Another reason you may see an apparent contradiction is that although a company may seemingly go against the purpose of an ESG fund by its current operations, its commitment and investments in change may warrant a spot. Take big oil, for example. It’s not far-fetched to see green ESG funds containing significant stakes in big oil companies. Yes, they play a large role in harming the environment right now, but they also make huge investments in green innovation that could change the future. 

If your values align strongly around a particular aspect of ESG, be sure to look past the fund’s name and stated mission and into its holdings. You may personally find some funds misleading and decide it goes against your investment objective. More than anything, just make sure you’re aware. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 2 good reasons to become an ESG investor — and 1 reason you shouldn’t appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks
*Returns as of January 12th 2022

More reading

‘The largest unmet medical need in human health’: Why this ASX biotech share is surging 28% today Fortescue share price rebounds 3% today What’s boosting the Qantas share price on Tuesday? How to start investing in stocks: This ASX 200 share is where I’d begin Here’s why the Beach Energy share price is leaping 4% today

Stefon Walters has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Free Share Allocation Reward Levels

STARTER

Class
$ 2,500 Deposit & Trade
  • REWARD^
  • 1 x Marathon Oil Corporation (NYSE:MRO)

ECONOMY

Basic
$ 5,000 Deposit & Trade
  • REWARD^
  • 1 x Pfizer Inc (NASDAQ:PFE)

ECONOMY

Standard
$ 10,000 Deposit & Trade
  • REWARD^
  • 1 x Amazon.com Inc (NASDAQ:AMZN)

ECONOMY

Plus
$ 25,000 Deposit & Trade
  • REWARD^
  • 2 x Apple Inc (NASDAQ:AAPL)
POPULAR

BUSINESS

Class
$ 50,000 Deposit & Trade
  • REWARD^
  • 4 x Apple Inc (NASDAQ:AAPL)

FIRST

Class
$ 150,000 Deposit & Trade
  • REWARD CHOICES^
  • 12 x Apple Inc (NASDAQ:AAPL)
  • 2 x Tesla (NASDAQ:TSLA)
^Please refer to the Free Share Promotion Terms and Conditions for details.

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here To Get Started
FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here For More Info