What is ESG?

ESG stands for Environmental, Social, and Governance. You might also hear it called "socially responsible" or "green" investing. While there are slight differences, the core idea is the same: investing your money in a way that aligns with your personal values. It’s about supporting companies that are making a positive impact, or at least minimizing their negative one. I refer to it as ethical investing because to be ethical is to act according to moral principles you believe are just , fair, and sustainable.

What do E, S, and G stand for?

E
(Environmental)

This looks at a company's impact on the planet.

Carbon emissions, waste management, energy efficiency, and sustainable resource use.

Cooling towers of a nuclear power plant with a body of water in the foreground and trees along the shoreline under a blue sky.
A lush green mountain landscape with fog and clouds drifting through the valleys.

S
(Social)

This focuses on how a company treats people.

Employee health and safety, fair labor standards, data privacy, and community relations.

Colorful outdoor mural with hands reaching towards the center, featuring hearts and messages about love, kindness, and giving, on a yellow background.
Multiple hands covered in red paint, forming a heart shape on a dark background.

G
(Governance)

This examines how a company is run.

Executive pay, transparency in accounting, shareholder rights, and preventing corruption.

A white dove flying near a rooftop on a city street, with a background of tall urban buildings.
Statue of Lady Justice with a blindfold, holding scales in one hand and a sword in the other.

How does it work?

Not all ESG strategies are the same. They exist on a spectrum, from a lighter touch to a highly active approach. Think about where you might fall by asking yourself: Is maximizing my financial return the top priority, or do I want to focus on making an impact?

Low involvement

This approach still prioritizes risk and financial return but uses ESG as an extra layer of analysis. Instead of avoiding "bad" companies, a fund might simply invest more in the companies with more favorable ESG policy within a particular index (like the S&P 500) and less in those with less favorable policy. The goal is to track the market while tilting toward stronger ESG companies.

Medium involvement

This is the most common approach. These funds exclude companies or entire industries that don't meet certain ESG standards based on the specific fund’s objective. For example, a fund might screen out companies involved in tobacco, weapons manufacturing, or fossil fuels. The goal is to exclude companies involved in certain controversial practices.

High involvement

This approach focuses directly on creating measurable positive change. A fund might invest in a company building a new solar farm or developing clean water technology. It also includes shareholder activism, where large investors use their voting rights to push companies to adopt better ESG policies from the inside, like demanding changes to executive pay or waste disposal.

Important considerations.

ESG investing is not without its own considerations.

  1. Performance and Risk: By excluding certain sectors (like energy or defense), you may reduce your portfolio's diversification. This could lead to periods where your risk/return is higher or lower than the broader market.

  2. Greenwashing: As ESG investing has become more known, some companies and funds have exaggerated their positive environmental or social impact to attract investors. It's important to look at what a company/fund does and not just what it says.

Ultimately, if investing in line with your values is your primary goal, ESG can be a powerful way to do it.

A tortoise with a patterned shell walking on grass and soil.
A white chinchilla sleeping on a log with a green, distressed wooden background.

Contact me

Interested in working together? Fill out some info and I’ll be in touch shortly. I can’t wait to hear from you!