We all have causes and initiatives that matter a lot to us personally. Whether it’s a certain charity or specific movement, we’re willing to show our support through donations, volunteering, or other initiatives.
We also tend to align with like-minded people, with many relationships forming through charity associations, passion projects, volunteer organizations, or activist groups. These strong bonds tie friends, significant others, and spouses together to create an added degree of connection. Could those same similarities help you feel a deeper connection to your investment portfolio?
Aligning your investments with your core beliefs isn’t as crazy as it might seem. In fact, it’s a growing trend called ESG investing, in which investors weigh environmental, social, and corporate governance (hence, ESG) concerns as much as traditional financial analysis when selecting stocks and bonds. In fact, a 2019 Callan Institute study on ESG investing found nearly half of institutional investors weighed ESG factors in their investment decision-making, up from 22% in 2013.
How can you make sure your portfolio is representative of your core values and beliefs? By knowing what’s important to you, researching your current investments, and keeping an eye out for companies whose beliefs, as demonstrated by their actions, align with your own.
Identify the causes close to your heart.
Before you begin ESG investing, you’ll need to figure out the morals and ideals that shape how you view the world. These will help serve as a guiding principle behind your investing decisions.
Do you place high value on companies that promote diversity and inclusion within the workplace? Is animal welfare as important to you as gun control? How about workers’ rights? Or limiting greenhouse gases with a goal of slowing climate change?
What if a company utilizes animal testing? Or meets only the bare minimum needed to be considered “ecofriendly?” Does that mean shares of this company’s stock are completely off your watchlist?
Whichever causes are important to you, write them down so you remember to remain true to yourself.
Research investments that mirror your values.
Balance sheets and quarterly reports are the be-all and end-all for many investors. ESG investors, however, look deeper and feel a sense of responsibility to invest their money in companies they can be proud of.
But what if you’re new to the ESG investing world and already have a large portion of your money invested in mutual funds, exchange traded funds (ETFs), or individual stocks? Are these funds aligned with your new ESG investing strategy? How do you know?
A company’s website typically promotes its core beliefs, volunteer efforts, and how its employees interact in the community. While these pages are meant to humanize the business’s values, a skeptic might consider them nothing more than a public relations move.
A number of independent third parties monitor, score, and rate companies based on a number of ESG factors. The Dow Jones Sustainability Index, FTSE4Good, Bloomberg ESG data, and GRESB are four of the most popular metrics for ESG ratings, while other reputable sources include:
Keep in mind, however, that even the top-scoring companies in these metrics might not meet the personal ESG requirements you’ve developed for yourself. So, while these resources are a good start, you’ll need to research deeper in order to ensure you’re investing in a company whose values truly align with your own.
All that might sound like a lot of work. But it could also open your eyes to other companies you’ve never considered and give you even more investing options.
If that research seems like too tall of a task, consider other options, like ETFs that are focused specifically on the environmental, social, and governance sector, which are available through Ally Invest’s self-directed trading platform.
Don’t forget the fundamentals.
While feelings on environmental, social, and corporate governance issues help shape ESG investors’ choices, they shouldn’t be the sole factor in your portfolio selections. After all: The goal of investing is to make money, right?
Fortunately — or, perhaps, in some cases, unfortunately — the world is changing, and many companies are rising to the occasion and doing their part as they become more aware of ESG concerns. But just because one company outranks another in ESG metrics, doesn’t mean the higher-ranking company is the better investment for your portfolio.
ESG investing is about using your morals and principles as a guiding compass, but traditional financial analytics should still play a role in your choices. Knowing what matters to you is the first step to begin ESG investing. Once you’ve nailed down the environmental, social, and corporate governance issues close to your heart, do your due diligence and research stocks, bonds, ETFs, and other securities you already own to make sure your investment choices align with your personal beliefs.
It’s important to find a balance between your heart and your head when making investment decisions.
Ready to focus on the causes that are important to you?