ESG Investing: Paying Off in the Future While Building One
As climate change heats the world we live in, investing in companies that help combat this existential threat and do general social welfare is turning out to be good business.
According to a new Morningstar report, quoted in a recent article published by CNBC, “Money invested in ESG funds more than twice as much in a year.” This is how much cash mutual funds that comply with ESG principles were netted in 2020, the report says.
ESG is an abbreviation for environment, social and governance. ESG investors evaluate their investments against these criteria in order to keep their portfolios as socially responsible as possible.
“The idea is that not only do you get high investment returns, but you can also find sustainable investment opportunities that are beneficial for employees and society as a whole,” explains Matt Frankel of Millionacres in this introduction: “What is ESG in real estate?” Invest? “He cites some Real Estate Investment Trusts (REITs) as examples.
What applies to ESG can be subjective, but here’s help
Passing the toughened glass pattern, like beauty, is to some extent in the eye of the beholder, but you don’t have to do it alone. The Forum for Sustainable and Responsible Investing, for example, maintains a list of funds and ETFs that meet the ESG criteria. You can check them out here, including their performance.
The momentum is building. This inflow into funds accounted for about 25% of all new money in US equity and bond mutual funds in 2020, compared to just 1% in 2014. This trajectory is expected to continue under a Biden administration, which is possibly making it easier to invest in such funds through 401 (k) s and direct US policies (governance), more in line with environmental policies adopted in much of the world.
And don’t forget about social issues like diversity in the workplace and civil rights in general. Even organizations as well-established as the National Association of Realtors have made such topics a must-see.
Millennials are about to ride this magical bus
Our greatest generation also has ESG principles in mind, says Joe Hale, director of sustainable investing research at Morningstar.
He notes that millennials, people between the ages of 25 and 40, are now getting their money’s worth, with money to invest themselves and growing roles in decision-making roles with foundations, pensions, and other institutional investors.
“We see so much money pouring in [ESG funds] Because we see investors excited about the concept, “Hale told CNBC.” They have these sustainability concerns and are starting to see that we can address them through our investments. “
ESG advocates will of course want to insist that these types of investments are both lucrative and responsible. Again, this can be subjective, depending on the stock or fund, as well as what you, yourself, or the list you’re looking at are ESG-worthy.
That said, here’s just one example of how they’re doing: “ESG funds outperform S&P 500 amid COVID-19 backed by tech stock boom.” And here are some Motley Foolish considering three specific funds.
The Bottom Line of Millionacres and Convenient Truths
ESG investing, of course, lends itself to long-term thinking and buying. The Motley Fool’s John Rotonti and Alyce Lomax point to several companies that meet the criteria and note that these characteristics may indicate a company that has top-notch management that will position its business for years to come.
“After all, worrying about ESG factors goes hand-in-hand with long-term thinking, and the ability to incorporate far-reaching outcomes shows a clear vision,” read a lengthy article titled “What is ESG Investing?”
“Thinking about how a company affects various stakeholders requires holistic, creative thinking that should not be underestimated as a competitive advantage,” write Rotonti and Lomax.
Makes sense. A company that is building a sustainable future not only relies on a climatic and social environment in which it can operate for years, but also helps to create it.
The bottom line is that there are many publicly traded companies promoting adherence to these principles and many lists evaluating their prospects and ESG credibility. With just one pick, it’s hard to resist hearing “Top 10 ESG Stocks Buy Al Gore’s $ 25 Billion Hedge Funds”.
We hope all of your ESG investments turn out to be convenient truths.