Can you name a type of investment that:
- Has equalled or bettered market averages over the long term?
- Is expected to more than double in assets under management, from $4.5 trillion to $10.5 trillion, between 2021 and 2026?1
- Is one of the most popular strategies among wealthy investors and major institutions?
No, it’s not bitcoin, or NFTs, or even Mars rockets. It’s ESG investing.
If you don’t know what ESG means, well, who could blame you? ESG is another one of those jargony financial industry terms that make investing even harder to understand. And that’s a shame because ESG strategies give investors – both individuals and groups – an incredible opportunity to express their personal values and amplify their voices.
That’s why Till Investors has made it our business to ensure you know what ESG means, and what ESG means for you.
What is ESG?
ESG stands for environmental, social, and governance and is the investment industry’s code for sustainable investing. The idea behind sustainable investing is that companies that focus on short-term financial gain often set themselves up for failure over the long term. In contrast, organizations that strive for sustainable practices tend to survive and thrive for longer.
But how can you define a company’s “sustainable practices”? ESG is the tool the industry is using to answer that question. ESG isn’t a definition of what’s good vs. bad so much as it is a package of data that measures the non-financial aspects of a business.
The environmental piece refers to a company’s impact on the environment and the world around them. Some of the data measured include a business’s ecological footprint, energy reduction efforts, and environmental impact record.
The social component outlines how a company treats customers, the people who work for them, and the communities they operate in. Key data points in this category may include workforce diversity, labor practices, lawsuits, and product and workplace safety records.
Governance analysis involves looking at a firm’s corporate policies and its ability to consider long-term risks and opportunities. It includes factors like board diversity, executive salaries, reporting, supply-chain management, and political contributions. If mishaps occur, how they were handled matters: were they swept under the rug, or were new policies created to ensure they did not happen again?
When you combine all three, you have ESG investing: the criteria used to assess the non-financial impacts companies have on the world around them. One could argue that this information is critically important for all investors since most investors focus more on long-term value creation than short-term profits.
What does ESG mean for you?
ESG means that your savings can now impact how the world works and generate returns at the same time. With ESG products’ development, individuals can choose investments that correspond more closely to their personal values. Groups like churches or foundations can use financial tools that directly support their missions. ESG investing allows you to address, for example, economic imbalances, social injustice, climate change, and other essential issues you or your organization want a greater voice in.
A decade ago, investing your values was an unfamiliar concept on Wall Street. That has changed as ESG data has expanded and improved. It only makes sense – if you’re someone who fights passionately against animal abuse, why would you accept investments in companies that do animal testing?
Here’s Till Investors’ worldview: You should have the opportunity to know exactly what your money is invested in and how those decisions are being made. And if you live a life guided by personal values (and really, who doesn’t?), shouldn’t your investments also speak to those values?
Why are some people so upset about ESG?
ESG investing has exploded in popularity, but like any rising trend, it has detractors. Over the past year, we’ve seen a backlash coming from both corporate titans and conservative politicians, who decry sustainability as ‘woke’ capitalism. They complain about companies pursuing goals that aren’t strictly financial – for example, establishing new standards in reducing greenhouse gas emissions or driving up diversity in their workforce.
It’s a curious complaint though. If ESG factors and goals were truly damaging to a company’s financial fortunes, then in theory the market would weed them out without any input from politicians or business titans on Twitter.
In fact, studies show that ESG strategies perform as well or better for investors than traditional strategies – maybe not this week or month or year, but over longer time frames. Other studies show that banning ESG approaches from state financing plans, as some states have done, can cost local taxpayers millions of dollars. The evidence suggests that the ESG backlash has more to do with the potential benefits of ESG than anything else.
You can make an impact
Few things you do in this world will have a more significant impact than how you invest. Your investments are the great lever you didn’t even realize was yours to pull–until now.
If you’re wondering how, don’t lose heart! Till Investors exists to help investors amplify their voice in the world by making their first sustainable investment. Till Investors works with people seeking to drive change for the common good and simplifies the path to investing that way too.
Investing your values is achievable, accessible, and actionable. Let Till Investors show you precisely what can be done. Review our website for investing tools, or contact us to speak to your group of interested sustainable investors. You can cultivate a better tomorrow, one that aligns with your money and mission, and we can’t wait to show you how to get started. Let’s talk!
1 https://corpgov.law.harvard.edu/2022/11/17/exponential-expectations-for-esg/
