So, the latest trend is the new ESG investing, or maybe you’ve seen the initials SRI.
What is it? ESG investing means: Environmental, Social and Governance
SRI investing means: Socially Responsible Investing
When an investment product is listed under ESG or SRI, they take morals and ethics of a company when determining where to invest. They will screen for companies that make managerial decisions based on social and environmental factors.
The screens include:
Social, reflects ensuring they are doing things that are socially responsible, and enabling a positive impact, and image. For example, ensuring they do not violate human rights for their workers.
Governance means there is oversight and helps to ensure that they are managing the risk, to avoid blow ups, because they didn’t skirt the rules and regulations. This might help to minimize the risk of an environmental disaster in highly regulated industries.
Sustainable is considered responsible, and enables the industry to continue as it is placing some responsibility to what it does when it goes into cultivating the land, or mine, dig for resources and try to replenish, or replace in the least hazardous manner.
They have a standard of following environmental regulations, and ideally setting a higher standard for their company. Examples include minimal destruction of land, or back the natural land that they used to dig/mine certain resources.
In this case, many tech or finance companies may qualify for ESG investing, as they are paying fairly, are sustainable, and not doing harm to the environment. However, they may not be doing anything to improve it either.
Impact or Environmental investing: When considering these more recent trends, the investor is actually holding investments that are focusing on SRI impact, and helping to improve the world’s current position to climate and environment. This means, they are not just applying screening methods to all companies, but focusing on companies that are leading these initiatives. As many governments are now providing incentives to improve the environmental situation, there are companies that focus on this area that could truly benefit from this interest.
To learn more about the newest SRI/ESG investing options, check out these resources:
So how does this fit into your investment portfolio? Do you already have some investments in ESG or SRI investments?
In most cases, a large % of portfolio managers already do have some ESG screening because it makes sense. Poorly run companies often end up in trouble because their shoddy tactics will catch up to them.
Interested in learning more? Please attend this ESG webinar, on Feb. 8th, 2022, 7 pm.