There is an investment maxim that many people have adopted: “Every investment has an impact. The question is is it positive or negative”.
I’ve invested to make an impact for years and, keeping that maxim in mind, sought to align my investments with my values. Honestly, this has been a desirable goal for a long time. Impact investing at scale has proved difficult as few alternatives are available across asset classes that focus on impact and report on environmental, social, and governance (ESG) factors. immature.
The process is also frustrating due to the lack of publicly disclosed information and available indicators of the ESG impact and priorities of a fund or company. I know I’m not alone in my frustration, but the mainstream investing world showed little regard for the social and environmental commitments of companies and funds at the time.
The picture is now quite different. Today, there is an explosion of interest in use capital investment to match value, whether an organization or an individual. Only in the last two years cash flow to ESG only one 10x growth to 51.1 billion USD.
There is more and more belief that Investment capital can be used as a powerful tool to benefit society and the environment and help reduce investment risk without affecting portfolio returns. And the best news for investors? An extensive dataset reports that ESG investments actually perform better, such as in 2020, when 25 out of 26 ESG equity index funds tracked by investment researcher Morningstar beat the benchmark for their directory.
As demographics have changed in recent decades, new classes of investors have helped drive ESG and impact investment activity. These new segments include the younger generation and women, whose economic power has grown and whose focus is aligned with value as conscious consumers expand into conscious investing. Meanwhile, the growing global movements on climate change, gender equality and racial justice also play a role in promoting participation.
Despite this impressive momentum, the market has yet to fully catch up when it comes to measurement, standards, and transparency, leaving investors scrambling to identify tools and resources to guide their investments. consistent with their values. Building the confidence to align with your financial and social goals can be difficult, especially for new investors. So it’s important to learn about the expertise, tools and resources available to you to help you maximize the positive impact of your capital. Here are three tips to get you started:
1. Identify what is most important to you: When deciding what to include in their portfolio, many investors start with a “screening” to make sure they include (positive screening) and exclude (negative screening) a certain types of investments to better match their value.
For example, you can screen for mutual funds or exchange-traded funds that invest in tobacco or weapons manufacturers, if that’s important to you. Similarly, if you are interested in the environment and renewable energy, you can screen funds that invest in this area. If you work with a financial advisor or some other platform, they may also have a proprietary screen template they use or recommend to help you identify areas of investment.
2. Choose a trading platform or advisor: Investment advisors can play an essential role in helping investors build a personal portfolio that aligns with their values. The advisor scans the market and serves as an indispensable guide, especially for new investors. Just make sure the advisor you choose is knowledgeable about ESG and other value-matched investments. Additionally, major trading platforms and brokerage firms including Vanguard Group, Charles Schwab and Fidelity Investments offer mutual funds and other products that have been developed with value-focused investors in mind.
3. According to the data: Companies measure what matters. That’s why it’s important to seek transparency in their intentions, measuring and reporting ESG factors to determine if a company or fund has an ESG endorsement or claims about it. their impact or not. Until standards emerge, the burden is on investors and advisors to follow the data trail — but there are companies doing some of the heavy lifting on this front to provide provides good insight for you to use as a reference.
Many companies across sectors are self-reporting their ESG progress and commitments in annual reports and often in dedicated sustainability reports. For a more independent view, some companies provide disclosures. CDP is a nonprofit that pressures companies to disclose data to measure and understand their environmental impact. The site allows you to see what many public companies have and have not disclosed. Eg, CDP data shows Apple disclosed its plans to combat climate change for 2019 and 2020, but did not submit any reports on water security in either year. While focusing on disclosure alone is often not enough, it’s a good start to see if the companies you’re interested in have action plans and reports in your priority areas. .
MSCI is one of the most comprehensive providers of ESG data and is often a key element in the arsenal of future-minded financial planners. Their most powerful tools come with a high subscription cost, but individual company ratings available to all on their website. MSCI also provides similar information about Funds focused on ESG.
You can also take advantage of insights from Sustainalytics, which measures corporate risk and offers an “ESG Risk Rating” for the financial industry on a free subscription and offering. look up each company instrument for individual investors – similar to MSCI. Sustainability analysis also has helpful videos on its methodology and focuses on providing tools to measure risk.
Another resource worth using is the S&P Global ESG indices. As with S Sustainability and MSCI, you can look up the ESG ratings of individual companies. Ratings are based on companies’ responses to the questionnaire. S&P Global provides three additional sub-scores for each component of the ESG, which can give you more information on the balance of activities going into the full score.
No matter where you are in your investment journey, it’s important to learn about the expertise, tools and resources available. When you are ready to get started or modify your portfolio by determining what is most important to you as an investor, take advantage of trading and advisory platforms, while continuously monitoring data to make sure your investments match your values. Whether sitting on the sidelines or just dipping your feet into value matching investing, build the knowledge and confidence needed to maximize the positive impact of your investment.
Jean Case is President of the National Geographic Society and CEO of Case Impact Network, identify the best methods and strategies on how to invest to make an impact.
https://www.marketwatch.com/story/these-3-smart-esg-investing-tips-can-have-a-powerful-impact-on-your-portfolio-and-the-planet-11626896091?rss=1&siteid=rss | Opinion: These 3 smart ESG investing tips can have a powerful impact on your portfolio and the planet