What it is
Environmental, Social, and Governance (ESG) investing is a way for investors to put money in investments that aim to leave a positive impact through 1 or more of the 3 ESG areas.
ESG investors use a set of criteria to decide whether they should invest in a company or asset. To gain their approval, businesses must not only focus on profits but also show that they care about the environment, society, and their own employees.
Here are a few factors investors consider across the different areas of ESG investing:
- Environmental
This aspect looks at how a company or investment impacts the planet. Some things to consider include carbon footprint, energy use, waste management, and sustainability.
- Social
This weighs a company’s contribution to the community, diversity and inclusion efforts, and other activities that may impact human rights.
- Governance
This focuses on a company’s structure and leadership. It examines factors like labor practices, pay equality, transparency, and decision-making.
There are organizations that track and rate the ESG practices of different companies or investments. Their rating systems may vary since there isn’t a single, universally accepted standard for ESG scoring.
What it means for you
ESG investing might be a good idea if you want to possibly grow money while contributing to causes that matter to you.
Buying green bonds is an example of ESG investing. These bonds let companies, governments, or organizations raise funds for environmental projects.
ESG investing also allows you to steer clear of investments or businesses whose activities may be at odds with your values or beliefs.
Though ratings exist, you may need to rely on your own judgment when doing ESG investing. Your values are personal, and you likely have your own definition of ideal ESG practices.
