An Easy Way to Invest Your Money to Create a Better World
Do you have extra money in a retirement or college savings account?
Are you concerned that the companies that you are considering investing in, though making good revenues, may be using practices that have a detrimental impact on the planet?
For a long time, many companies and their managements have considered the only purpose of their business to be returning capital to their shareholders, no matter the cost.
The main goal was to grow the business as much as possible in order to make as much money as possible.
Investing with Purpose
More recently, however, there has been a trend toward companies being conscious of the world around them and the effects they have on it.
Potential shareowners are voting with their dollars on businesses making a more positive difference with their operations, besides just benefitting from positive cash flows.
This practice, known as ESG (Environmental, Social, and Governance) investing, formerly called socially responsible investing, is becoming more popular recently.
ESG investing means that you can look at areas a company effects besides general operations, such as the environment, workplace diversity, and community. It also refers to a company’s governance and policies.
Environment: An investor like you may check if a company causes a lot of pollution, whether in the air, or in rivers or lakes.
If they have been, are they taking steps to address it, like using alternative energy to run their factories or warehouses, such as solar or wind power?
You may also look to see if they are converting their transportation vehicles to natural gas, or electric.
Social: Workplace diversity is becoming more important, as well. Companies are benefitting from being inclusive of people from different cultures and backgrounds.
You can see if a company is not only more inclusive, but if it is also promoting minorities and women to higher level positions.
Another place to check on a company’s progress is in the community.
Do they try to positively influence the communities in which they serve?
This can mean:
youth development,
education programs
reaching out to underserved neighborhoods
One area that a lot of companies are now engaged in is volunteering. Many are encouraging employees to volunteer in the companies’ communities. Some are even matching employees’ donations to charities.
Governance: A business’s governance also can be evaluated. Do they follow sound policies, and adhere to ethics in their activities? Have they been investigated and fined for questionable or illegal activities?
How to Find “Highly Rated” ESG Companies
So, how do you find out if companies are engaging in these positive practices, and trying to make the world a better place, and not just making profits?
One place to start is by looking at publications that list top-rated companies:
Forbes and Newsweek have lists of the “best corporate social responsibility companies,” and Forbes has additional articles written on the subject.
Morningstar, a reputable stock research firm, has “Sustainability Ratings” for mutual funds, allowing investors to “understand how the companies in their portfolios are managing their environmental, social, and governance – or ESG – risks relative to their peers.”
Yahoo! Finance is a website you can go to in order to find ESG ratings on individual stocks. When you look up the company, just access the menu header, “Sustainability.”
You will find numerical scores based on that business’s exposure to, and management of ESG issues’ risks. The site also shows the risk scores for industry peers.
Finally, you can go to a specific company’s website itself. Companies may have a “corporate responsibility” page, which talks about the programs and initiatives that it is involved in regarding better business practices.
If there is not a section given on the website, you can usually find information about it on the company’s Annual Report, generally listed under “Investor Relations.”
Comparing ESG Investing with the Market
So, this is all well and good, but you may be wondering whether it is possible to make money, beat the market, or at least keep up with the market, when investing with high ESG standards.
This is a somewhat difficult question to address, since there are challenges in different industries, and companies can have different levels of ratings in each of the areas.
On a broad basis, there are financial services companies with ESG Index or Exchange Traded (ETF), unmanaged funds, that track the general market for businesses with superior ESG ratings.
Some examples are Vanguard, Blackrock, Fidelity, and Nuveen, which provide different types of ETFs, while firms such as Parnassus have managed mutual funds.
You can go to those, and other financial services companies’ fund prospectuses, on their websites, to evaluate their quarterly, annual, and long-term returns, and compare them to their appropriate index benchmark returns.
Conclusion
In general, more people using ESG investing principles could be a positive trend in the market, and for businesses and industries in general.
It’s a good way for potential shareholders to vote financially for better business practices.
And more companies are becoming receptive to balancing growth and ESG sustainability, which can be better long-term for businesses, the communities in which they serve, and the world around us.
Update: Here are some links to articles with updated information on ESG investing, which is gaining more attention:
https://www.fool.com/investing/stock-market/types-of-stocks/esg-investing/