What is ESG investing?
A week or so ago I shared how to build what I call a Disruptor Stock Portfolio. The concept is where you build a stock portfolio of companies that are disrupting whole industries. For example, what Tesla’s electronic vehicles are doing to the auto industry. Today I am sharing another type of stock portfolio that both individuals and professionally-managed money can invest in. Some companies like to invest in companies that are focused on fixing problems that are important to mankind. That is called ESG investing. The acronym stands for environmental, social, and governance.
When did ESG investing get its start?
ESG investing has been around for decades. However, in the past few years it was become a more widely known topic in the investment community. In fact, my understanding is that the most recent World Economic Forum meeting in Davos was all about ESG investing. I have no doubt that the focus on environmental issues is driving a lot of the interest in ESG investing.
What is an ESG stock?
It is easy to get consumed by the ESG label. To be an ESG stock companies don’t have to produce a product or service that is meant to address environmental, social, or governance issues. Instead, companies have to produce a product or service in a way that meets one of the categories criteria. For example, if they meet guidelines and/or provide solutions that are approved by EPA standards. Another example is Intuit, the owner of Quickbooks. Since their Board of Directors is very diverse the company is considered meeting governance standards.
How to invest in ESG companies?
Like most stock investing you can invest in ESG-based companies by either investing in individual stocks (like Microsoft; yes they are considered an ESG stock). Or, you can invest into mutual funds and exchange-traded funds (ETFs) that invest partially or entirely in companies that meet the ESG label requirements. I am a fan of Vanguard’s products. So I have been watching their Vanguard FTSE Social Index Fund. Fund manager iShares has an entire portfolio of sustainability funds that you can take a look at.
Wrapping up
As always, you should make your decisions when making an investment by contacting a qualified professional. I simple wanted to point out that ESG investing is pretty popular right now and an area you should be researching.
I’m curious if you would ever invest in a publicly-traded company simply because you believe in its mission? Let me know by saying hello on Twitter and letting me know which company/companies you are watching.
Until next time, if there is anything I can help you with be sure to say reach out to me at jmp@jonathanmillspatrick.com. I’ll do my best to point you in the right direction.
