The term “sustainable investing” has been getting a lot of attention lately, and for a good reason. As the world continues to become more aware of how our actions today impact tomorrow, many people are looking for ways to invest responsibly.
Investing that takes environmental, social, and governance (ESG) principles into account are known as sustainable, responsible, or impact investing. Rather than simply avoiding companies that you believe may be harmful to society or the environment (known as blacklisting), ESG investing works with companies that you believe are doing good for the world (known as whitelisting).
This way, you can also identify companies that claim to be actively working to create a more sustainable world but aren’t doing so (known as greenwashing).
In this article, we’ll take an in-depth look at what ESG investing is and why you may want to consider it part of your long-term financial strategy.
What Is ESG Investing?
The three core principles of ESG investing are environmental, social, and governance. ESG investing refers to taking these three principles into account when choosing your investment options.
Environmental considerations include how the company creates waste, how it uses and conserves natural resources, and how it protects the environment. Social relations include how the company treats its employees and customers and interacts with the communities where it operates. And governance considerations include the company’s financial health and transparency.
It’s important to note that the principles aren’t a checklist that any company can pass with flying colors. Instead, they’re a set of criteria to help you make better investment choices by increasing your awareness of how companies impact society in both positive and negative ways.
How to Practice Sustainable or Impact Investing
To practice sustainable or impact investing, you’ll need to decide which criteria you’ll incorporate into your investment strategy. You don’t have to incorporate all three criteria, but you should take some time to figure out which ones matter to you most.
You’ll likely want to consider the industry that a company operates in, the company’s environmental and social practices, and the company’s financial health. This will vary from person to person and from one investment strategy to another. Once you decide which criteria you’re going to incorporate, you can start looking for companies that fit the bill.
Remember to keep a close eye out for companies that might be practicing greenwashing. The ESG sector is largely unregulated, and some companies claim to be sustainable but aren’t practicing any sustainability measures.
The Bottom Line: Should you try ESG investing?
As our world becomes increasingly aware of the impacts of our actions, more and more people are seeking ways to be responsible and sustainable with their money.
Sustainable investments are a great way to do this, but they aren’t suitable for everyone. If you’re interested in making your investments more sustainable, it’s essential to decide which criteria are most important to you and start looking for companies that fit the bill.
While it may be challenging to make an enormous impact with your investment, you can make a difference by investing in companies that need your help and can benefit the world as a result.