ESG Framework: Maximizing Value & Impact Through Sustainable Investing

Aug 31, 2023 4:14:38 PM

I recently sat down with Gordon Severson for an interview for KARE 11’s Your Money segment focused on “Your Money Good for the Environment and Your Wallet.”

Watch the full video here. Let’s keep the SRI investing conversation going. 

What Does it Mean to Invest in Your Values?

It’s helpful to understand the history of Impact Investing. Sustainable Responsible Impact Investing (SRI Investing) gained a lot of popularity in the 60s as a means to avoid or exclude investing in certain companies that were considered “sin stocks.” The excluded companies would’ve included those with activities that supported unethical activities (alcohol, tobacco, gambling, guns).

Since then, the term SRI has expanded into a new definition that seeks to evaluate companies for various reasons. This new term ESG investing (or environmental, social, governance) has gained much popularity over the last 10-15 years, especially with Millennials and Gen Z, who are passionate about climate change, diversity, and transparency in investing. ESG is a framework used to evaluate companies based on their dedication to the environment, societal impact, and diversity inclusion. Trillions of dollars have been poured into companies that help to promote positive change. Investors have found a way through ESG investing to align their values with their investment strategies.

Resource: The Full Guide to Sustainable, Responsible Impact Investing

How Can Someone Invest in Green Companies and Sustainability?

How to invest in SRI has been one of the most significant changes in this particular area because now there is even wider access and availability to investments that have ESG or SRI components to them. As companies work to incorporate healthier practices and the screening continues to evolve, we will continue to see an increase in investment opportunities entering into this space. But in general, you can purchase individual stocks or bonds, mutual funds or ETFs, or private investments that all have ESG/SRI components inside a brokerage account. Brokerage accounts can be accessed in a variety of ways. Often the best option is to hire a financial advisor to help you open and customize a portfolio for you that not only aligns with your values but also aligns with your long-term goals.

What Types of Funds and Other Investment Vehicles are Available for “Green” Investing?

To start, I should mention there’s been a fair amount of controversy lately and legislation around companies advertising they are “green.” We suggest working with a financial advisor to evaluate funds. Still, it’s also important for everyone to research the investments that they are interested in. Using a third-party tool like Morningstar can help you assess if the investment aligns with your values. Make sure you understand how they are defining their SRI or ESG criteria as well. What are they doing with the funds they receive? Some additional resources you can use are:

Examples of Green Investments:

  • Fossil free funds
  • Bonds are a fast-growing area of green investing. You’re buying a bond that is funding a project with a direct environmental benefit. For example, you can invest in local green issues like solar and wind farms through private debt or equity. Sustainable agriculture is widespread and growing.
  • Funding real estate projects for sustainable housing is another option. There are two main ways to access these types of investments. Mutual funds and ETFs are the easiest and most common. Others may be available through private investments and offered for higher net-worth individuals. Ensure to get professional help or use good resources when evaluating your options.

Can I Still Get Good Results With My Investments?

Given the rapid rise of ESG investing, more and more historical data will be available over time. But generally, we haven’t seen a big difference in investment returns. But it’s essential to be clear what your goals are when investing in anything and how that investing aligns and helps with those goals. Impact investing should not be a strategy solely to get higher returns. I also should point out that based on how ESG has been trending, we wouldn’t be surprised if the majority of mainstream investments would be using ESG criteria in the future anyway.

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