Environmental, Social and Governance (ESG): Aligning Investment Choices with Social Causes

Maura Schauss |

The CFP® Team at Washington Wealth Advisors

We all have social causes that we care about. But there can sometimes be divergence in the causes we care about and our investment decisions. This does not have to be the case. As investors, we can consider both financial return and social good, giving us a chance to support the causes we care about, while diversifying our investment portfolios.

Environmental, Social and Governance (ESG) Criteria

In general, socially conscious investors seek to encourage corporate practices that promote religious beliefs, environmental stewardship, consumer protection, human rights or diversity.

Money managers are incorporating ESG criteria into their investment analysis and decision-making. ESG criteria can also be used to limit investment in areas that conflict with the investor's values.[1]

One in Three Dollars Is ESG–managed Today

By assessing potential investments using environmental, social and governance (ESG) criteria, along with financial performance metrics, investors can assign “points” to companies whose practices align with their values. More points translate to a higher weighting in the target portfolio.

The ESG market is huge in the U.S. and around the world. According to the Forum for Sustainable and Responsible Investment, one out of every three dollars under professional management in the United States is involved in ESG.[2]

Different Terminology, Same Idea – Socially Responsible Investing (SRI)

As you would surmise, there are as many approaches to Socially Responsible Investing (SRI) as there are SRI investors; Socially Responsible investors may refer to SRI as:

  • Community investing
  • Ethical investing
  • Green investing
  • Impact investing
  • Mission-related investing
  • Sustainable investing
  • Values-based investing

A Rich History of Investing for Social Good

Investing for social good has a rich history dating back thousands of years, as people have long invested based on their values. In the United States, this investment approach dates to the mid-1700s, when the Quakers refused to invest in any aspect of the slave trade and avoided investing in companies involved in the liquor, tobacco, or gambling industries—the so-called Sin Stocks.

Fast forward to the 1980s, and shareholders, citing their opposition to apartheid-ruled South Africa, convinced U.S. companies to withdraw from South Africa, which fueled an international boycott that brought about change and helped lead to fair elections.

Things to Think About

Ruling out companies for practices that you disagree with does occasionally result in diminished profits. In fact, a good financial advisor will warn investors that their environmental and social screens might result in leaving money on the table.

Further, as in all investing, having a broad diversification of your investment portfolio is always important. Most financial advisors will therefore recommend mutual funds that cater to socially responsible principles for this reason. For example, investors who see global climate change as a significant business and investment risk can consider investing as part of the portfolio in environmentally conscious companies.

Investing according to your conscience can turn your portfolio into a powerful agent for change you believe in.

We Can Help Support Your Unique Goals

If you are interested in socially responsible investing, connect with us to talk with a trusted advisor to support your unique goals and assist you with finding investments that match your values.  Call 703.584.2700, email clientservices@washingtonwealthadv.com or Schedule a meeting using our online booking system. 

 

Important WASHINGTON WEALTH ADVISORS DISCLOSURES Information

ABOUT WASHINGTON WEALTH ADVISORS

Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our unbiased advice, independent approach, and proactive investment management help to support our clients’ overall financial peace of mind.

 

Sources: EMoney https://abm.emaplan.com/ABM/MediaServe/MediaLink?token=3cdceed66b7a4ae1a0fd2e168057b00f

 

[1] US | SIF Foundation. “Report on US Sustainable, Responsible and Impact Investing Trends 2018.”https://www.ussif.org/files/Trends/Trends 2018 executive summary FINAL.pdf. Accessed July 2019.

[2] Forum for Sustainable and Responsible Investment. “SRI Basics.” https://www.ussif.org/sribasics. Accessed July 2021