ESG stands for Environmental, Social & Governance. ESG Investing means investing in companies, directly or through funds, which rank well across these three criteria. Here is an excellent article on ESG Investing basics from Forbes.
Growing numbers of institutional and individual investors are ESG Investing. Major Canadian investment fund providers like RBC/iShares and BMO offer an increasing range of ESG ETFs listed on the TSX and there are hundreds of US listed ESG ETFs. Investors can find ETFs focused on clean energy, electric cars, gender diversity, etc. The list goes on and on.
Not surprisingly, there is a fair amount of controversy around ESG investing. And I think some investors will be dismayed with the gap between ESG hype and the current reality.
But, if you want to invest based on your own individual values, where do you go from here?
Do some research….take time to learn ESG basics
Decide which industries/sectors to support and which to avoid
Review your portfolio (you may find that many of your current assets would be considered suitable for ESG portfolios)
Decide what portion of your portfolio to convert to ESG….consider starting small especially if you are investing on your own
Replace some non-ESG stocks and ETFs with ESG stocks and ETFs that largely match your values
Ensure your resulting portfolio still provides the right balance of stocks versus bonds and appropriate geographical and sector diversification
Of course, a big question is: How will ESG investing returns compare to overall market returns? As always, there are experts on all sides of this question. Time will tell.
ESG Investing is a complex topic but I hope this gives you a basic sense of what is happening.
All the best!
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