If you think that only large companies or fund managers have sufficient funds or manpower to make this world a better place, think again.
The good news is that you, as an individual and as an investor, can make a huge difference when it comes to the Environmental, Social, and Governance (ESG) issues that the world faces today. And this is true no matter how much money you may have to invest.
ESG investing is becoming more and more popular as a way to express investor values regarding issues such as climate, water shortage, carbon emissions, gender equality, diversity, as well as the role and responsibility of corporations in these areas.
Many people are still a bit confused about this new class of investing, frequently turning to financial advisors for help with their ESG portfolios. And often, retail investors think that they need a lot of funds to be able to invest in such tools, which is not the case.
In an unprecedented year like this one, it’s no surprise that people and organizations alike are prioritizing how to make a positive, long-term societal and environmental impact. And financial advisors have taken note.
“We have seen a growing number of clients of all ages interested in ESG portfolios,” said Andrew Dressel, financial planner with Abundo Wealth. “Clients tend to be interested in NOT investing in certain companies based on either the industries they are in or the business practices they deploy. Clients like to vote with their investment dollars by not rewarding bad actors or companies that do not align with their personal beliefs.”
His company proposes clients ten different ESG portfolios based on their goals and beliefs, he explained. Depending on clients’ sustainability priorities, they are able to remove a segment of the market, such as tobacco stocks. Or, they can add an increased focus on corporations with clean energy initiatives.
“We have found that as companies continue to adapt to aligning themselves with ESG principles that the number of options for investments and the underlying performance continues to improve,” he said.
Leanne Rahn, a financial advisor at Fiduciary Financial Advisors, said that the topic on ESG requests from clients is one of her favorite ones because “you can put your money to work while investing in the planet. Yep. And people are all about it – specifically younger clients.”
She said that through consideration and research, she’s been able to select funds and companies that closely align with her clients’ passions.
“You don’t have to be rich to change the world,” she explained. “Millennials have been especially attracted to this idea of ESG investing. And guess what? They don’t have multi-millions in assets – or even a million! The simple matter of fact is knowing their money is being put to work in a positive way.”
Many people still might have the impression that investing in ESG means that you’re giving up on return. But several studies have shown that this is not the case. More importantly, firms that are high on the ESG scale and the funds that invest in them are usually better able to resist market downturns, as supported by MSCI, a leading provider of company and fund ESG ratings and research.
Mark Struthers, founder, and financial planner at Sona Wealth Advisors, said that he’s trying to have clients understand that “ESG will produce better returns over the long-term and not just when large growth is outperforming. I also think that ESG companies pursuing ESG values may reduce risk for the investor. ESG/SRI (Socially Responsible Investing) will no longer be sacrificing return for values, but the right values producing better risk-adjusted returns.”
He said that he always liked this theme and for the first time feels like he can actually market it to clients: “I think more investors want companies to serve stakeholders and not just shareholders; I am excited to help.”