ESG, or "Environmental, Social, and Governance," is an investment method that focuses on socially responsible investing. ESG criteria are a way for investors to evaluate companies in which they may want to invest.
Think of the ‘E’ as standing for ‘environment’ or ‘earth.’ A potential investor may research the company’s impact on the earth and environment (including climate change policies, greenhouse gas emissions, water-related issues, carbon footprint, Green products, and its relationship with the EPA). Is the company a true steward of the natural world?
The "S" in ESG looks at the social component of companies and issues that affect employees, both within the company and out in the larger world. Items to watch for are employee treatment and benefits, working conditions, staff turnover, and the company’s public stance on social justice issues. This angle also examines the company’s business relationships.
The governance component of ESG looks closely at the leadership of the company, including if stockholders can vote, executive pay, if the company uses transparent accounting methods, and whether they avoid conflicts of interest, political contributions, and engaging in any illegal practices.
No once company will pass all criteria tests with flying colors, so investors have to prioritize and focus on what is most important to them. There are challenges and complexities to ESG investing, so considering all options may be important, such as charitable giving to organizations that you care deeply about and in which you may see a more palpable result.
One Day In July financial advisors will work with you to clarify and simplify your investment plan. If ESG is a priority for you, we will discuss your options and help you make the best decisions for both your wallet and your values.
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