ESG Investing: What Exactly Is It?

(Daily360.com) – Looking for ways to invest your money? The process can be grueling thanks to the number of options people have available. Environmental, social, and governance (ESG) investing, a method for analyzing potential opportunities, may help you build your portfolio faster. But what exactly is this approach, and how can you use it to your advantage?

2 Reasons Why ESG Investing Is So Popular: @adamsarhan looks at the main reasons why environmental, social and governance investing isn't going away any time soon. https://t.co/r28g7maOG9 from @Forbes #impinv

— Case Foundation (@CaseFoundation) March 18, 2019

ESG investing allows investors to predict potential returns on investments while also assessing the overall impact of the money they’re spending. It’s about investigating non-financial elements to try and gain a clearer picture of just how sustainable a company or organization really is before moving forward with an investment.

Environmental factors include issues like a company’s carbon footprint, whether it is involved in climate change activism, and whether the investment stands to benefit or harm nature in some way.
Social factors include an investee’s track record on diversity, equity, and inclusion, including how it treats employees and whether it actively works toward positive social change.
Governance factors examine the business from an operational perspective, including how leadership manages everything from labor law concerns through shareholder rights and even illegal business practices.

The idea is simple: the better you understand a business’s operating model, the easier it should be to predict whether it can withstand the test of time or even grow. A higher chance of success increases the potential for investors to actually see that return manifest one day.

ESG portfolios tend to be much more sustainable in general, boosting the chance to secure high returns. In the long run, the investments may offer a lower overall risk profile.

Investors have the option to pick from ESG stocks or mutual funds. To get started, you’ll first need to decide if you want to move forward on your own or have someone, such as a financial adviser or broker, help you through the investment process. Then, you can start looking for stocks and mutual funds that meet the desirable criteria that matter to you the most.

Next, decide where you want to put your money and start your portfolio. Reading reviews can help by giving you insight into the company’s ESG score. They may also aid you in determining whether the investment is wise in the first place.