What is ESG Investing?

By: E. Napoletano, Benjamin Curry, Contributor and Editor respectively of Forbes Advisors, March 1, 2021

Environmental, social and governance (ESG) investing is a strategy you can use to put your money to work with companies that strive to make the world a better place. ESG investing relies on independent ratings that help you assess a company’s behavior and policies when it comes to environmental performance, social impact and governance issues.

“At its core, ESG investing is about influencing positive changes in society by being a better investor,” says Hank Smith, Head of Investment Strategy at The Haverford Trust Company.

ESG investing is investing in companies that score highly on environmental and societal responsibility scales as determined by third-party, independent companies and research groups.

“The underlying premise is that there are certain environmental, social and corporate governance factors that actually impact business,” says Smith. “Considering those factors gives investors a more holistic view of companies, which can help mitigate risk and identify opportunities.

”Here’s a closer look at the three criteria used to evaluate companies for ESG investing:

• Environment. What kind of impact does a company have on the environment? This can include a company’s carbon footprint, toxic chemicals involved in its manufacturing processes and sustainability efforts that make up its supply chain.

• Social. How does the company improve its social impact, both within the company and in the broader community? Social factors include everything from LGBTQ+ equality, racial diversity in both the executive suite and staff overall, and inclusion programs and hiring practices. It even looks at how a company advocates for social good in the wider world, beyond its limited sphere of business.

• Governance. How does the company’s board and management drive positive change? Governance includes everything from issues surrounding executive pay to diversity in leadership as well as how well that leadership responds to and interacts with shareholders.

For many people, ESG investing goes beyond a three-letter acronym to address how a company serves all its stakeholders: workers, communities, customers, shareholders and the environment.

“Identifying the impact, positive or negative, on these five stakeholders is what should become the measuring stick for quality ESG investing,” says Mike Walters, CEO of USA Financial. “This is important for the obvious impactful reasons relating to each stakeholder, but it also can be used to identify the strength and sustainability of the company itself.”

Walters says that companies that put in the work to balance the benefits for each of their five stakeholders simply become well-run companies. And well-run companies become good stocks to own.

All investing involves risk, including the possible loss of principal. No strategy assures success or protects against loss.

E. Napoletano, Benjamin Curry and Forbes are not affiliated with Atlas Wealth Strategies and LPL Finanical.

^{Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and Atlas Wealth Strategies are separate entities from LPL Financial.}