If you’re already familiar with what the term ESG means and why you’d want to invest with environmental, social, and governmental concerns in mind, you’ve reached the final hurdle: how? While it might seem simple to say, ‘just invest in companies that do good,’ the reality is more complex.
How do you measure a company’s environmental impact? What about their supply chain, or their enterprise customers? How much research do I need to do on their board of governors and their leadership? What effects are they having on the communities they operate in? How do I make sure I’m making investments that are good for me, as well as good for the world?
These are the first questions you might ask yourself, and none of them are easy. The reality is that unless you can dedicate a lot of time to it (and are a skilled researcher besides), you probably can’t find this information yourself, much less put that information to use. That’s why most people looking to invest in ESG portfolios do it through an ESG fund or a money manager.
There’s been an explosion in the number of ESG mutual funds and ETFs available to investors, but even now they make up a small fraction of the market. Within that small fraction, though, there’s anywhere from 50 to several hundred funds, depending on who you ask. That’s just those funds with an ESG focus, not including funds that may be rated highly on ESG metrics but not explicitly “ESG funds.” Investing in one of these funds makes it easier to trust that you’re investing responsibly, but introduces new concerns over fund management, expense ratios, and liquidity. If you plan to build your own ESG portfolio, do so carefully and solicit professional guidance if you can.
Most commonly investors interested in ESG portfolios engage a money manager with experience in ESG investing. By working closely with a financial advisor that makes this a priority you’re getting the benefit of someone who can spend all their time doing the research and who does have access to the tools and information necessary to make investments that are a) sustainable, b) secure, and c) suitable for your financial plan.
If you're not certain how to pick a financial advisor, we've got some advice for you on that front as well. Reach out and talk to us about finding and engaging a financial advisor, or to ask whatever questions you have about ESG investing.
The task of investing in accordance with your principles can seem daunting, but what’s true for investing overall is true for ESG investing as well: everything starts with a plan. Talk to someone to make sure you’re on track for your plan, and to find out how ESG investing might fit into it.
This series of topical articles is intended to provide general information. For more details on the subject, or to find out how these securities and strategies fit into your plan, reach out to one of our financial advisors.