Image Source: Wall Street Journal
Here's an acronym you probably don't hear very often when it comes to investing: ESG.
ESG stands for Environmental, Social, and Governance. These three words form the bedrock of socially responsible investing. Socially responsible investing is when companies act and spend for the greater good of society and not just to make a profit. Those companies are then rewarded by investors like you and me when their values align with our own.
Why does socially responsible investing matter? Socially responsible investing is important because some companies want their investors to know that championing important causes like a clean environment, gender diversity and fair executive compensation matters. Making money and doing good for your employees and society at large are not mutually exclusive ideas.
These companies want you to know that they are stewards of your hard earned investment capital for the greater good. And good corporate stewardship can only succeed when tied to values that closely align with your own.
And don't think that ESG investing is for losers! Many empirical studies have shown over time that ESG can generate a positive return in your investment portfolio over other traditional investments without greater risk.
So, how and where do you find companies that are ESG responsible?
The easiest way to find them is via mutual funds. The Forum for Sustainable and Responsible Investment has a website where you can screen mutual funds based on costs, returns and advocacy for values tied to ESG. The website is a great place to start for any individual investor looking for socially responsible investments linked to their values.
Please make sure however that ESG funds are suitable for both your risk tolerance and investment outlook. Speak with a registered financial advisor to help find the right fund for your investment needs.
In short, ESG isn't a bad acronym to learn how to invest in companies who strive to make the world a better place for everyone.
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