Environmental, Social And Governance (ESG) Investing

17 February 2021

ESG investing is where consumers invest in companies that strive to make the world a better place. Investors rely on independent ratings that review the behaviour of company policies when it comes to environmental performance, social impact and governance issues. Clients then invest in companies that score highly on environmental, societal and governance scales.ESG investing addresses how a company serves all of its stakeholders: workers, communities, customers, shareholders and the environment. Mike Walters, CEO of USA Financial, believes that companies which put in the work to balance the benefits for each of their five stakeholders simply become well-run companies, and in turn, well-run companies become good stocks to own.

Detailed below are some of the criteria used to evaluate companies to ensure that they meet ESG investing standards:

Environment: This looks at the impact the company has on the environment and issues such as carbon footprint, toxic chemicals involved in manufacturing and sustainability efforts.

Social: This looks at the social impact the company has on the broader community as well as its own work culture. LGBTQ equality, racial diversity, inclusion programs and hiring practices are considered in this section as well as how the company advocates for social good in the wider world.

Governance: This area looks at how management within the company drives positive change. Issues such as executive pay and diversity in leadership are reviewed along with leadership interaction with shareholders and the wider community.

ESG research firms review areas such as annual reports, financial management, board structure and compensation to deliver a wholesome evaluation of a company. Scores are produced for each company based on their ESG rating. Scores generally follow a 100-point scale: the higher the score, the better a company performs in fulfilling specific ESG criteria. Bloomberg, S&P Dow Jones Indices, JUST Capital, MSCI and Refinitiv are a few of the most well-regarded ESG research companies.

The ESG sector has soared in popularity in recent years. In the United States last year, investors pumped $47 billion into ESG investing, double the amount of the previous five years combined. A 2020 study found that 60% of sustainable funds outperformed the market over 10 years. For ESG investors, the aim is to help the planet and humanity as well as acquiring a positive return on their investments.

If you would like to invest in ESG funds I would recommend that you contact a Financial Advisor to discover the options available for doing so on the Irish market.

Marie Carr MSc BBS QFA RPA is a Qualified Financial Advisor and Retirement Planning Advisor. You can contact her through John F. Loughrey Financial Services by telephone on 074-9124002 or by email at marie@jfl.ie

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