Investing with your values in mind is natural – intuitively, people don’t want to use their money to support people or businesses that cause harm. But financial security is important too. So when people think of investing with environmental, social, and governance (ESG) factors in mind, they are right to ask: is ESG a good investment?
The short answer is yes. ESG is an investment industry shorthand for sustainability – the kind of business practices that help a company survive and thrive regardless of the challenges they face. The COVID-19 pandemic gave us all a window into why sustainability matters. COVID was a health crisis, but it was also a huge disruptor for businesses of all kinds. Interestingly, companies that showed a commitment to sustainability were among the leading performers in the depths of the crisis.
Choosing to add ESG to your portfolio doesn’t mean abandoning your very important financial goals. Your investments can thrive, and communities can prosper, because ESG is a good investment. Here’s why.
ESG Means Built to Last
Let’s be clear: ESG investing is not a fad that means going green at all costs. Instead, it is an established, measured, reasonable investment strategy that pursues long-term investment results by focusing on companies that prioritize long-term sustainability.
That’s especially valuable in an environment filled with sustainability challenges, such as inequality, climate change, and labor shortages. Some companies are simply better than others when it comes to managing natural resources, building a diverse work force, enhancing opportunity in their local communities, and other sustainability issues. It’s just common sense that such companies are built to last. And data supports the logic – they build wealth over time because they are good at navigating challenging times.
Large, institutional investors and wealthy individuals know this data, and have been pushing hard in recent years to include sustainability in their investment approaches. You can take advantage of this too.
ESG – Lining Up with the Long-Term
Investing with ESG principles in mind is often called sustainable investing, in part because it’s meant to focus on sustainable approaches to working with people and planet. But it turns out that company performance also becomes more sustainable when ESG is in play.
Studies of ESG companies, and of investment strategies that focus on them, consistently show that they hold their value better during difficult times. Generally speaking, people are just more confident that sustainable companies will survive when times are tough, and recover faster when conditions improve.
ESG investments are still…investments. Like any investments, values will go up and down based on the news of the day, and there will be stretches where sustainable companies lag behind their more short-term focused competitors. For example – traditional oil and gas companies have been losing value for more than a decade as the dangerous affects of fossil-fuels on climate change have become more clear. But in 2022, a host of short-term trends – demand from China, a war in Ukraine – pushed up oil and gas commodity prices dramatically.
The oil and gas giants greatly outperformed sustainable strategies that year. But if you’re investing for a long-term goal, like retirement, how sustainable is this short-term trend, and how valuable is it for your personal success?
Sustainable companies set themselves – and their investors – up for success by identifying things that have lasting value. And they win lasting fans. Isn’t that what you’re investing for – long-term financial security? This is exactly what investors need: companies trying to create durable value that will support you into retirement, the Golden Years, and beyond.
And isn’t it great knowing your dollars have the potential to determine a better tomorrow? You can put your money where your values are.
ESG Isn’t Going Anywhere
Sustainable business practices are here to stay because companies see them as a competitive advantage in a rapidly changing world.
For example, lots of ESG investors want to move away from fossil fuels and the rush toward renewable energy. We want a cleaner world that includes thoughtful companies that treat workers well and exude environmental stewardship. ESG business leaders want this too, but for sound financial reasons. Fossil fuels are only going to become more expensive. The costs of adapting to climate change could be massive. There’s a competition for talent, and unhappy employees don’t help you win.
Embrace ESG because––thankfully––it’s not going anywhere.
Till Investors thinks investing your values is achievable, accessible, and actionable. Sign up at our website and get updates on our forthcoming book about how you can make your first sustainable investment.