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Environmental, social and governance investing, or ESG, has become quite the craze among not only large corporations but also individual investors. ESG is under the broader umbrella of impact investing, which differs from traditional investing because, along with being concerned with your return on investment, you’re also looking at what the overall impact of your investment is, typically in relation to and producing environmental sustainability. 

For example, if you’re trying to decide to invest in one share of Ford Motor Company or Tesla, you might consider not only whether the stock price will go up or down but also what kind of environmental impact the two companies have.

Though a very popular example, the environmental focus is not the only aspect of ESG. The social component of ESG involves evaluating a company’s activity and policy involving employment treatment, diversity and inclusion and an organization’s overall mission. The corporate governance component focuses on how a corporation runs business, among other aspects.

There is not yet a standardized process or metric to classify what company scores “high” or “low” on in each measure. A lot of the analysis will vary from who’s conducting it and what they prioritize more, so ESG is still very much an evolving field of study. Nevertheless, as an individual investor and corporation, ESG initiatives are highly prioritized and heavily invested in, for good reason. 

Sustainability is a big priority for millennials. Millennials are worth $1 trillion in consumer spending, and 73% say they’d spend more for sustainable products, according to Gallup. This speaks to the growing demand for sustainable products across all sectors of consumer spending, including clothing, food, even investment options. As a result of the growing concern for the environment, ESG investment opportunities have popped up. 

So what are ESG investment options? You were always able to purchase stock in a publicly traded company, which is a form of an ESG investment. However, it’s now more accessible to individuals with the creation of ESG exchange-traded funds. There are a variety of ETFs that track certain ESG sectors, such as the First Trust Global Wind Energy ETF, which gives investors a passive way to invest in wind energy. 

You can learn about the advantages of passive investing here. ETFs are a type of security that tracks an index, sector, commodity or another asset and can be purchased or sold on the stock exchange. 

ESG ETFs have an advantage over directly purchasing a single stock because you no longer have to pick which wind energy company you want to invest in, you can invest in the sector as a whole at a more affordable price. 

Another option for ESG-conscious investors is using robo-advisors that offer pre-made, socially responsible investment portfolios built from ESG-grade ETFs. Robo-advisors such as Betterment and Ellevest offer impact portfolios, which have high percentages invested in ESG and impact mutual funds. While these services charge fees, they offer convenience for those who don’t have the time to actively manage their investment portfolios and research every company and how they rank in ESG. 

As you progress through your personal finance journey, you will likely come across more and more of these types of options. It might be worth considering investing in more than a company’s bottom line.

Andrea Lan is a junior finance major. Her column appears biweekly. She can be reached at alan01@g.syr.edu. She can be followed on Twitter at @AndreasLandBlog.

Published on March 9, 2021 at 10:26 pm