Is ESG worth it?
More and more investors want their investments to reflect their values. Yet, there is a persisting belief that “investing for good” involves a trade-off in performance. Years ago that was largely true but today it is not a given.
Investing with an Environmental, Social and Governance (ESG) approach, also often used interchangeably with Socially Responsible Investing, has been transformed in the last few years. “Assets under professional management that take ESG factors into account in the United States increased 42 percent between 2018 and 2020 from $12.0 trillion to $17.1 trillion, which is 1 out of every 3 dollars.”1 With such large inflows into ESG investments, it is no longer a specialty or niche strategy.
Having worked in the investment industry for a long time, I am usually pretty skeptical of new fads or investment products. While I think that attitude remains important for any investment strategy, what has really changed here is that ESG investments have really come into their own. The rise of the internet has helped make information about stocks and the companies they represent more accessible. With that accessibility has come more transparency in many cases about what companies do and whether they are good corporate citizens or not.
When I was in graduate school in 1990, there was really only one dimension to measure corporate success—profits. If a company was highly profitable that often translated into good stock performance. The focus on profits was pioneered decades ago by famous economists such as Milton Friedman and Adam Smith. This single-minded approach has led to a number of unintended consequences such as the financial market meltdown in 2008 and several other economic crises. Investors are realizing that these side effects can be very damaging to our environment, communities and families.
Today investors expect more from their investments. Thankfully, the number of options and ways to invest according to your own values is expanding and the industry is maturing.
If you are looking for ways to invest according to your values, give us a call, we’re here to help. You can schedule a quick call with me by clicking HERE.
Lyman H. Jackson Lyman@PlanWithFPS.com
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At our website you can also read our recent blogs about:
· Investing for good: 4 ways to think about your SRI/ESG strategy
· Interested in where your investment dollars go? Socially Responsible Investing (SRI) Might Be For You
1 The Forum for Sustainable and Responsible Investment (USSIF), “Getting Started in Sustainable Investing: A Guide for Individual Investors” published 8/11/2021, https://www.ussif.org/blog_home.asp?display=175
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