TheMillionDollarBrain

How to get Started with ESG Investing

What is ESG Investing? 

The idea of ESG investing is an attempt to think beyond shareholder value and what other values matter to a corporation in the long run. ESG investing takes into consideration the financial gain but also the direct or indirect impact the company has on the well being of others. 

ESG investing uses three central factors,  Environmental, Social and Corporate Governance to measure the sustainability and social impact of an investment. These three factors are used when researching and evaluating stocks.

Environment: 

The environmental portion of ESG takes in consideration the company’s positive and negative impact on the physical environment. Environmental criteria may include some or all of these  factors listed below:

  • Biodiversity 
  • Waste Management
  • Water Management
  • Climate Change and Carbon Emissions
  • Air and Water Pollution
  • Deforestation
  • Energy Efficiency 

Social:

The social component of ESG focuses on its consideration of people and their relationships. Listed below are some of the criteria that are taken into account when investors are reviewing the social component.  

  • Diversity 
  • Customer Satisfaction
  • Community Relations
  • Labor Standards
  • Human Rights
  • Consumer Protection
  • Animal Welfare 

Governance: 

The governance component relates to how well the company is run. Listed below are some of the issues investors look at when analyzing the governance component of ESG: 

  • Board Composition 
  • Executive Compensation
  • Lobbying
  • Political Contributions
  • Management Structure
  • Employee Relations

How to find ESG Funds?

If you are ready to start an ESG portfolio, you will have to decide if you want to do-it-yourself or get some help with robo-advisors and/or financial advisors.

Do-it-yourself ESG Investing:

Investors that want to do it themselves, can start off by looking for “best of” lists for the top ESG-rated stocks each year. These lists are published by various outlets. These lists are a  starting point to help you find potential investments that might align with your goals and moral compass. You may need to open a brokerage account, here is an article on how to to open one – How to open a Brokerage Account

ESG Robo Advisors:

ESG Robo-advisors are an easy and convenient way to build an ESG investment portfolio. Robo-advisors are digital advisors that manage and build your investment portfolio based on your risk tolerance and your goals.

How is ESG calculated? 

ESG scores are calculated by different companies with varying methodologies. The rating companies use multiple criteria to evaluate each individual component of Environment, Sustainability, and Governance.The three most well known ESG rating companies are Bloomberg, JUST Capital, and MSCI. The scores for ESG rating normally use a 100 point scale. The scores will vary among the different firms because of the varying metrics and weighting schemes each firm uses. 

What are the top ESG Companies?

The stocks listed below all have a AAA rating from MCSI. 

  • Nvidia
  • Salesforce
  • Best Buy
  • Expeditors International 
  • Microsoft
  • Boise Cascade
  • Agilent Technologies
  • Cummins
  • Patterson Companies
  • NextEra Energy 

What are the best ESG funds?

Vanguard FTSE Social Index Fund Admiral 

  • Ticker Symbol: VFTAX
  • Assets under management: $10.8 
  • Dividend Yield: 1.2 %
  • Expense: 0.14%

iShares MSCI Global Impact ETF

  • Ticker Symbol: SDG
  • Assets under management: $379.1 million
  • Dividend Yield: .9 %
  • Expense: 0.49%

Pax Large Cap Fund Institutional 

  • Ticker Symbol: PRBLX
  • Assets under management:
  • Dividend Yield:
  • Expense: .70%

What are the easiest ways to invest in ESG?

CompanySocially responsible portfolio offerings
Account
BettermentProvides three impact portfolios to choose from: Broad Impact, Climate Impact and Social Imp.act.Sign up for an account
Ally InvestOffers a Socially Responsible Managed Portfolio option. Sign up for an account
EllevestEllevest Impact Portfolios are invested in up to 53% ESG and impact funds. Sign up for an account
Stash
Categorizes ETFs that support various social and environmental causes.
Sign up for an account