A new way to diversify your assets, and one of the biggest trends sweeping the financial world right now, is sustainable investing. Interest in sustainable investing (also called ESG investing or socially responsible investing) is surging, as consumers and governments have begun demanding more of corporations.
Will the ESG investing trend continue? Read on to learn what sustainable investing is, what it means for retirement savers and other shareholders, and how it can benefit you if you want to use your investment dollars to promote positive change.
What is Sustainable Investing or ESG Investing?
Sustainable investing is an approach that considers environmental, social, and governance-related (ESG) factors alongside traditional investing principles.
Socially responsible investing doesn’t reject traditional asset management theory; rather, it builds upon it. As with any investment portfolio, the goal of an ESG portfolio is successful long-term returns. But it also considers environmental and societal impact and corporate responsibility. Essentially, ESG investing would be another filter on top of the traditional investment process.
Socially conscious ESG portfolios are made up of brands with high ESG ratings. An ESG rating measures how well a company is responding to environmental, social and governance concerns, including things like:
- Carbon emissions
- Energy efficiency
- Renewable energy use
- Worker safety
- Diversity & gender equality
- Water sourcing
- Raw material sourcing
- Privacy and data security
- Product safety and quality
- Employee access to healthcare
- Employee wages
- Executive compensation
- Accounting practices
- Tax transparency
Unfortunately, there are a number of ESG rating agencies using various benchmarks and measurement criteria. So it’s not always easy to understand a company’s true ESG performance.
However, the MSCI (Morgan Stanley Capital International) ESG score is a widely referenced ESG rating system, with over 8,500 companies scored using hundreds of metrics across 10 categories of environment, social, and governance exposure.
Is it Worth Switching to Sustainable Investing?
You might be wondering, will a sustainable investment fund hurt my returns? It’s totally natural to want to invest consciously and also protect your stake. The good news is ESG funds perform as well as, or better than, traditional exchange-traded funds. In the first year of COVID-19, a majority (19 out of 26 analyzed) of ESG funds outperformed the S&P 500. Other studies have revealed the same.
It certainly sounds like a win-win for anyone wanting to do their part to help save the planet—literally—while saving for retirement.
Getting Started with Sustainable Investing
If you like the idea of using ESG investing to build your retirement nest egg, there are a few ways to go about it. It can be as simple as seeking out companies that match your personal values—though you’ll have to do some research. For example, you could choose to avoid tobacco companies or brands with poor sustainability ratings. Or align yourself with any other cause that motivates you.
Another option is to work with a financial advisor to start a sustainable investment fund. The right financial advisor is someone who factors your entire financial outlook, including your personal and retirement goals, into your investment decisions.
Explore What’s Possible for Your Financial Future
No matter what stage of retirement planning you’re in or what you hope to achieve, a financial advisor can help you get there.
At Wealth Legacy Institute, our approach is a little different. Our financial advisors leverage time-tested investment principles like diversification and risk balancing, while also considering your values, goals, and dreams for an ideal retirement lifestyle.
If ESG is important to you, great! We can help you work it into your financial plans. Whether you want to leave behind a legacy for your children, start a foundation in your name, or any other dream for your future retirement, we can help you make it happen. And since we are fiduciary financial advisors, you can rest assured we’re acting with your best interests in mind.
Are you prepared for a successful retirement? Find out the answer and more with our FREE 2022 Essential Retirement Guide.
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