More and more people are acting with their investment dollars by putting the planet first, raising sustainability as the critical driver for business, corporate stewardship, and economic growth. ESG Investing involves screening for additional criteria when choosing investments while keeping growth of a portfolio a priority. By evaluating corporate policies related to Environmental matters (climate change/ pollution), Social matters (diversity/ ethics), and Governance (leadership style/ transparency) we are able direct investments towards companies that prioritize growth with a conscience.
In the past, it was assumed that ESG investing would ease your conscience but may also compromise investment results. Fortunately, research now suggests you do not have to choose between competitive returns and your ethics. Your assets can keep pace with the market, while making the world a more sustainable place in the process, leading to greater fulfillment for all parties involved.
“When you think about the world that your children are growing up in, and may eventually raise their own children in, it’s empowering to have the ability to direct assets toward companies who share the ESG priorities.”
Investors and advisors alike have a responsibility to consider the carbon footprint of their portfolio. The goal of building wealth to last generations doesn’t have to come at the expense of quality of life for our children’s children.
Adding an element of ESG awareness to healthy portfolios allows individuals to feel good about moving the needle on the sustainability of our planet and quality of life worldwide.
I believe the companies that will be leading us into the future will be the ones that adopt the practices and philosophies that are more humane and sustainable. As awareness of business practices grow, bottom line profits are not enough. Companies must evolve and the guidelines put in place by the ESG movement will help to determine exactly what that direction looks like. With a greater emphasis on living according to their values, investors are increasingly ready to take a stand with their investment choices.
As ESG becomes a common practice, and more investors insist on ESG data in their investments, a positive feedback mechanism will be created. Attracting and retaining investors will require companies to take steps to improve their ESG profiles resulting in better outcomes for employees, customers, and the environment.
I always tell my clients that if they are curious about ESG investing, and how their current portfolio measures up, the tools are available to screen current holdings and rate them according to ESG standards. I recommend adjustments that can help to align holdings with your moral and ethical standards. Portfolio growth, stability, AND sustainability - you CAN have it by adding ESG to your plan.
Investing involves risk; principal loss is possible. There are no guarantees that any investment objectives will be achieved. ESG Investments may be subject to additional risks because social criteria may exclude securities, so investors may forgo some market opportunities available to those that don’t use these criteria. ESG investing may also take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks. This information is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or investment strategy. The information provided does not take into account the specific objectives or circumstances of any particular investor or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time and cannot be guaranteed.
Paul Kuhn CRPC®, Waddell & Reed, Inc., 702-904-7544, pkuhn@wradvisors.com
