The Emergence of ESG Investing
How generational and societal change is influencing companies and the markets.
Provided by Peter Livingston
ESG: what does that acronymstand for? Those three letters stand for "Environmental, Social, and Governance" and signify an investment that has particular merit to investors of all ages.
A recent Morgan Stanley Bank survey found that almost 90% of millennials would prefer to have investments that suit their values. With young adults, ESG investing could become more and more of an element in investing strategies.1
You may recall how the phrase “socially responsible investing” became part of the stock market vocabulary a generation ago. Socially responsible investing (SRI) was often about not investing in certain companies – businesses whose products or services seemed distasteful to this or that investor. ESG investing focuses more on corporate behavior. Is a corporation managing natural resources sustainably? Does it treat workers well? Is its culture inclusive and diverse?
Corporate values count, perhaps now more than ever. Today, you have companies pledging to commit to environmentally sustainable practices and leadership initiatives designed to include women and members of minority groups in the C-Suite.
Some corporations now include ESG metrics in financial and annual reports. This is more than a nod to investors; it represents a trend in corporate communication and behavior. One notable ESG metric is CEO pay. Some S&P 500 firms have gotten bad publicity over the last decade for the degree of executive compensation their leaders receive, and investors are watching.
Philosophically, ESG investing asks two questions. An ESG investing proponent's answers may differ significantly from those of an investor uncompelled by the ESG approach.
One, should social responsibility matter more than a company's financials when you are considering an investment? Two, can positive environmental and social news about a corporation influence its stock's value more than its earnings and guidance?
If you want to explore the world of ESG investing, consult your financial professional for the insight and information that can help you identify your choices.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.
- Corporate Finance Institute, February 24, 2021