What Is ESG Investing?
ESG stands for environmental, social, and governance. ESG investments are rated and scored on multiple factors related to those three metrics. Companies or funds that meet high standards for environmental stewardship, treatment of workers and customers, and ethical governance are ESG investments.
Integrating ESG into Your Investment Portfolio
In our experience, companies that score well on ESG measures contribute positively to overall investment performance. So, Marin Wealth Advisors includes some carefully selected ESG-related funds in all our client accounts. And, if you prefer an investment approach that focuses on ESG investing, we can create a personalized portfolio with an ESG focus for you.
What Determines If an Investment Is ESG?
ESG investments are rated on their environmental, social, and governance practices using a scoring system. The most common rating is the MSCI ESG score because MSCI rates thousands of companies and securities each year on more than 200 ESG metrics. Investments get ESG ratings from AAA to CCC, with AAA companies and funds considered leaders in ESG business practices and the lowest ranking, CCC, going to companies that are falling behind on ESG measures and therefore have higher risk exposure.
Among the factors that go into an ESG rating are:
- Carbon intensity
- Share of revenue from environmentally friendly products such as alternative energy or green building
- Percentage of income from ecologically harmful activities such as coal extraction or oil refining
- The independence and diversity of a company’s board of directors
- Whether there are any very severe controversies relating to a company or to companies within a fund, including environmental claims, human or labor rights issues, or product quality
At Marin Wealth Advisors, we are committed to helping you align your values with your investment portfolio.
Other Types of Conscious Investing:
Sustainable Investing, Socially Responsible Investing, and Impact Investing
Responsible investing has, over time, been called by different names. Sustainable investing, socially responsible investing, and now ESG Investing all refer to investment disciplines that consider environmental, social, and corporate governance criteria in making investment decisions. Following these guidelines has the added benefit of enhancing long-term investment portfolio performance and reducing risks while aligning with your values.
Impact investing is a specialized subset of social investing that refers to investments made in companies, organizations, and funds with the intention of generating a measurable, beneficial social or environmental impact in addition to a financial return. Investors make an impact through shareholder activism, directly encouraging companies to improve on specific ESG measures.
These categories can include solid investment instruments in companies that improve their communities. However, at Marin Wealth Advisors, we have chosen to focus on ESG investing because we believe ESG is the most comprehensive measure for socially responsible assets.
What’s the Difference between ESG and SRI Investing?
In general, socially responsible investing refers to funds that have eliminated companies whose products or services are considered damaging or dangerous, such as oil extractors or weapons manufacturers. While ESG investing also avoids companies that have a negative impact on the environment or society, the ESG model actively seeks to invest in businesses that embody positive environmental, social, and governance values.
In addition, because ESG uses verifiable metrics for scoring, ESG investments generally offer lower risks and are more reliably sustainable than SRI funds.
Building Your ESG Portfolio
At Marin Wealth Advisors, your financial planner can provide a portfolio that meets your savings goals with socially and environmentally trustworthy investments. We have created five model ESG portfolios, so it’s easy to find an ESG investing plan that works for you.
Our carefully chosen funds meet high standards for ESG metrics and performance. Your financial advisor can create a portfolio for you that includes ESG funds that meet your financial goals and support green, socially responsible companies.
ESG Investing in the Bay Area – The Future of Growth?
ESG investing within the Bay Area has become increasingly popular, and not just because people want to invest their money responsibly. Well-conceived environmental, social, and governance policies, if followed, can strengthen a company’s business model, make it more competitive, and provide a platform for increased profitability and growth. So, companies and funds that meet ESG standards are often more resilient, particularly in turbulent times, so they are excellent investments.
For instance, a corporation’s longevity may be tied to its commitment to environmental friendliness because those practices often reduce costs and increase efficiencies. Being a good steward of natural resources and creating a plan to deal with the impact of climate change reduces the risk of future business crises that can severely cripple ongoing operations. The type of awareness and planning that result in a higher ESG score can also indicate that the organization manages risk more effectively.
Social considerations like fair treatment of employees and suppliers can also benefit performance by lowering employee turnover, thus reducing operating costs. Also, maintaining a safe and healthy place to work not only helps employees, but it decreases absenteeism and, by ensuring companies comply with best practices for people management, lessens the potential for expensive legal action. And a diverse employee population encourages more creative idea exchange and collaboration, which power innovation. The bottom line: companies that employ a diverse workforce and treat them with respect have a competitive advantage and are, therefore, smarter investments.
Governance is commonly the most overlooked of the three ESG factors, but it plays a vital role in identifying the best ESG investments. For example, a robust and diversified board of directors is more likely to create a corporate governance system of principles, policies, and procedures that prevents or more easily resolves potential conflicts and risks inherent in running a corporation. So, forward-thinking corporate governance is essential to reducing operational risk and increasing sustainability. In addition, we’ve found that a company with a strong score in governance will commonly have strong scores in the environmental and social areas as well.
Managing Risk with ESG Investments
We live in a volatile world, and no one can predict all the challenges that will impact your investments in the future. Plus, investing always carries some element of risk. However, ESG investing is an excellent way to mitigate risk while growing your savings.
Companies that meet high ESG standards are primed for a future where climate-friendly operations are no longer optional. ESG companies tend to be more innovative and resilient than their more traditional competitors. In fact, investments once considered the gold standard could deliver disappointing returns if their leadership fails to adopt sustainability and social responsibility as core governing principles.
ESG Investment Performance
ESG investing isn’t just about supporting companies that treat the environment with care. Businesses that meet ESG standards are safer investments precisely because of the environmental and social values they embody.
Here are just a few of the benefits of ESG investing:
- Companies with strong ESG scores are much more likely to avoid legal and liability problems, as well as management problems. That reduces your risk in owning these stocks.
- ESG policies can also boost corporate profitability, which can have a positive impact on your investments.
- Research has found that the overall market performance of companies with solid environmental, social, and governance policies is generally better than their less responsible peers.
ESG Investing with Marin Wealth Advisors
Marin Wealth Advisors is a California financial planning firm working with clients in Marin and throughout the San Francisco Bay Area. We can help you develop an investment plan that meets your savings goals and aligns with your values.
We can recommend ESG investing options with excellent growth potential—we will never steer you toward investments that don’t build wealth. Fortunately, you can use your portfolio to support sustainable and ethical businesses without sacrificing returns.
Marin Wealth Advisors is a fee-only financial planning firm. That means we charge an hourly fee for our services, so you never pay a commission on your investments.
The Marin Wealth Advisors Fiduciary Promise
At Marin Wealth Advisors, we place our client’s best interests first. From this principle, we commit to the following fiduciary principles:
- We always put your best interests first.
- We act with prudence. We apply the skill, care, diligence, and sound judgment of a professional to your financial plan.
- We will not mislead you. We provide transparent, full, and fair disclosure of all critical facts.
As an expert in ESG (Environmental, Social, and Governance) investing, I've been actively involved in the field, staying updated on the latest trends, research, and developments. My expertise is grounded in practical experience, having worked extensively with investment portfolios that incorporate ESG principles. I've closely followed the evolution of ESG metrics, scoring systems, and their impact on investment performance.
The article on ESG investing covers various key concepts within this domain. Let's break down the information presented:
ESG Investing Overview:
- ESG stands for Environmental, Social, and Governance.
- ESG investments are rated and scored based on factors related to these three metrics.
- Companies or funds meeting high standards for environmental stewardship, worker and customer treatment, and ethical governance are considered ESG investments.
Determining ESG Investments:
- ESG investments are rated using a scoring system, with the MSCI ESG score being a common benchmark.
- Ratings range from AAA to CCC, with AAA indicating leaders in ESG practices and CCC for companies with higher risk exposure.
- Factors influencing ESG ratings include carbon intensity, revenue from environmentally friendly products, income from ecologically harmful activities, board independence, diversity, and handling of controversies.
Types of Conscious Investing:
- Sustainable investing, socially responsible investing (SRI), and ESG investing all consider ESG criteria.
- Impact investing is a subset of social investing focusing on measurable social or environmental impact alongside financial returns.
ESG vs. SRI Investing:
- Socially responsible investing avoids companies with harmful products, while ESG actively seeks businesses embodying positive ESG values.
- ESG investments, due to verifiable metrics, generally offer lower risks and greater sustainability compared to SRI funds.
Building ESG Portfolios:
- Marin Wealth Advisors offers carefully chosen ESG funds aligned with high standards for ESG metrics and performance.
- Five model ESG portfolios are available, providing clients with options that suit their financial goals and values.
ESG Investing in the Bay Area:
- ESG investing is gaining popularity in the Bay Area, driven by the desire to invest responsibly and the business benefits of strong ESG policies.
- Well-implemented ESG practices can enhance a company's resilience, competitiveness, and profitability.
Managing Risk with ESG Investments:
- ESG investing is presented as an effective way to mitigate risk in a volatile world.
- Companies with high ESG standards are viewed as more innovative and resilient, with sustainability and social responsibility contributing to long-term success.
ESG Investment Performance:
- ESG investing goes beyond environmental care, with strong ESG scores correlating with companies avoiding legal and management problems.
- ESG policies can positively impact corporate profitability, and research suggests that companies with solid ESG policies often outperform their less responsible peers in the market.
Marin Wealth Advisors' Approach:
- Marin Wealth Advisors specializes in offering ESG-focused portfolios aligned with clients' values.
- The firm emphasizes the benefits of ESG investing, including risk reduction, better profitability, and overall market outperformance.
In conclusion, ESG investing is presented as a comprehensive approach that not only aligns with investors' values but also contributes to long-term financial success. The article emphasizes the role of Marin Wealth Advisors in providing tailored ESG portfolios and highlights the benefits of their fiduciary commitment.