Sustainable and responsible investing (SRI) is a rapidly growing segment of the investment world. According to data from the University of New Hampshire, assets under management in the U.S. SRI market grew from $13 billion in 2007 to $267 billion in 2018 — an astonishing 20-fold increase over the past decade.
Moreover, this growth shows no signs of slowing down. The ESG (environmental, social, and governance) fund industry experienced a record year in 2019, with third-party capital raising $38 billion.
ESG Funds: A Trending Investment
Individual investors are increasingly focused on how their investments affect society and their portfolios. As a result, ESG funds have never been more popular.
Unlocking the Door to Profits While Preserving the Planet
Funds comprising companies with excellent track records and strong management teams — determined by specific, measurable standards — will outperform their peers over time. Unlocking these kinds of insights requires a particular type of investing called “ESG,” or Environmental, Social, and Governance based investing.
Every savvy investor knows the value of having a responsible investment strategy: It reduces risk, mitigates downsides, and increases profits But what about environmental, social, and governance (ESG) factors? Do they represent new opportunities for investors?
The answer is “Yes!” This ethical investment approach increases profits while minimizing risk. When you look closely at a company’s financials, it becomes clear that more than just a firm’s profits are at stake. A company’s environmental impact and relationship with its employees are also essential.
A robust fiduciary duty standard ensures that fund managers act in the best interest of the fund’s investors. This standard includes the use of ESG metrics to measure the potential of a company’s stock. Managers who don’t consider these factors may be putting investors at an increased risk.
Reviewing the Benefits of ESG Funding
When evaluating an ESG fund, you should pay attention to two key metrics: the fund’s rating and its expense ratio. The fund’s rating is a letter grade. It shows the fund’s strengths and weaknesses.
The fund’s expense ratio is its total annual operating costs as a percent of its assets. The expense ratio is used to determine the fund’s management fee. If you’re looking for a sustainable investment option, then yes, ESG funds are an excellent choice for long-term investors
An ESG fund is also a great option for risk-averse investors who are willing to sacrifice some profits for better long-term results. ESG investments are a good option, as well, for investors who don’t have time to research individual companies.
An ethical ESG fund has a high rating and a low expense ratio. It is managed by a company with a proven track record. A good fund will also be committed to transparency. It will be open about its investment strategy and methods.
Making a Commitment To Sustainability
When a company is committed to sustainability, its ethics and dedication to others are rewarded – environmentally and financially. If you are researching stock fund choices, make sure you find a fund that comes attached with the letters “ESG.” Over time, companies prioritizing sustainability reap respect, profits, and ongoing growth.