We’re all looking to do more with our money. Often, that has just meant finding ways to stretch our dollars, build our savings accounts, and invest for our future. But what if doing more with your money also meant doing more for the public good?
Well, thanks to environmental, social, and governance (ESG) investing, you can. ESG investing is an investment strategy based on examining stocks across these criteria before choosing to invest.
But how do you discover which companies align with your values, particularly when it comes to diversity and inclusion?
Read on for the resources that will help you on your ESG investing journey.
ESG Investing, the Short Story
ESG is an investment mentality that favors long-term sustainability. It doesn’t just deliver financial returns, but also aims to produce lasting positive change in our world by allowing socially-conscious investors to invest in businesses that support causes they care about while also meeting their investment goals.
ESG investing uses a positive screening process rather than a negative one. In other words, as an ESG investor, you don’t avoid companies for ethical reasons. Instead, you actively seek to invest in corporations that fit the socially responsible mold, based on ESG criteria.
Aligning your investments with your heart — you could say it’s the best of both worlds. So, it’s no surprise that the movement continues to gain traction. According to a 2019 survey, ESG investment skyrocketed with U.S. investors pouring $20.6 billion into these funds in 2019, four times as much as 2018.
Focusing on Diversity and Inclusion
If you’re interested in pursuing the S (or social) aspect of ESG investing, you’ll want to look into the people-related elements like company culture and those issues that impact employees, clients, consumers, and suppliers both within the organization and society.
You can start your research by reviewing potential investments using reports like Global Reporting Initiative (GRI), or the United Nations-supported Principles for Responsible Investment (PRI). These resources include information on employee, supplier, and community elements.
When analyzing these reports, some social metrics you should take a close look at:
- Corporate and organizational culture
- Employee treatment, pay, benefits, and perks
- Employee training and advancement
- Employee engagement and turnover
- Employee safety, including sexual harassment policies
- Company or organizational stated mission
- Public stance on social justice issues and lobbying efforts
- Diversity and inclusion (D&I) across hiring and advancement practices, opportunities, and raises
Reports and Rankings
For many ESG investors, diversity and inclusion has become the primary benchmark when measuring successful social investment.
As a result, some in the ESG investment space have further broken out rankings to highlight diversity and inclusion as a critical investment measurement and opportunity.
Refinitiv’s Global Diversity & Inclusion Index ranks firms using 24 metrics across four categories (diversity, inclusion, people development, and news controversies) and covers more than 7,000 companies. And if you’re looking to target a more specific area of D&I, like gender diversity, MSCI’s ESG Equity Indexes allow you to search along specific impact targets, such as women’s leadership.
It’s also important to note that nonprofits, civil rights, and social justice organizations can also be helpful sources of information. Look for groups that most align with your list of values, as many produce these kinds of rankings, so you can make a difference where it matters to you most. For example, The Human Rights Campaign Foundation’s Corporate Equality Index is an annual release, while the NAACP’s Opportunity and Diversity Report Cards are released every few years.
Many other ESG reports and indexes exist and are free to access — just be sure to utilize reports that use the respected sustainability standards of GRI and PRI.
Even More Ways to Get in the Know
Beyond these top-notch ESG and socially focused reports, you can also keep an eye on annual lists and rankings from well-known publications and media outlets.
And to expand your research further, try searching phrases like “best companies,” “diversity and inclusion,” and “ESG.” You can find plenty of sources online, like Top Companies for Diversity & Inclusion from employee review site Glassdoor, among many others.
By combining the information you gather from the wealth of resources available, you can compile a list of ESG companies and organizations that fit the bill for your socially focused investment strategy.
Making the Commitment
Once you’ve done the research, the next step is to invest in the causes you care about. Investing with an ESG approach doesn’t mean you have to sacrifice returns. A recent study revealed that one third of responsible investment portfolios have yielded above market-rate returns in the past year. Even better, you can take different approaches to building your portfolio.
If you’re more of an independent and want to be hands-on with your portfolio, you can buy and sell eligible securities that align with your ESG investing strategy commission-free using our Self-Directed Trading account.
Or if you’d prefer for someone to do the portfolio building and monitoring work for you, our cash-enhanced Managed Portfolios let you invest in low-cost ETFs that reflect your values without paying any advisory fees.
Building a Future — Socially and Financially
In the past, investing your money simply meant finding ways to make it do more for you. But with the advent of ESG investing (and its ability to generate competitive returns in the market), you can also do more for the greater good — and that includes supporting diversity and inclusion through your investment portfolio.
Are you ready to invest with a higher purpose? Explore your opportunities with Managed Portfolios and Self-Directed Trading.