Socially responsible investing — investing “for good,” to benefit causes or companies we care about has long been popular. In October, we described it as “the hottest investing strategy this year.” But was this buzzword on every investor’s lips last year? And how has it evolved during the coronavirus pandemic?
Why you should care about ESG investing
These questions may seem particularly pressing if you’re interested in ESG investing. More than that, though, the topic of socially conscious investing is especially relevant now because of the increased interest in activism and social awareness we’ve seen in a post- 2020 world.
“While the COVID pandemic is beginning to wane in our country, the social unrest that COVID sparked continues unabated,” says Marie Thomasson, Owner and Financial Planner at Modern Assets. “Awareness of inequality — including economic, racial, gender, and environmental — is top of mind for many investors, particularly younger generations.”
Reasons for ESG success during the pandemic
Recent findings show that ESG funds were successful during the pandemic.
“The performance trade-off has been, if not the biggest, one of the biggest myths around sustainable finance,” Matthew Slovik, head of global sustainable finance at Morgan Stanley, said in an interview with Institutional Investor. “I think that more and more research, whether it’s from the Morgan Stanley Institute for Sustainable Investing, from S&P, from Oxford or Harvard or others are showing that sustainable investing can in fact, perform and deliver stronger risk-adjusted returns.”
The success, growth, and lower fees associated with ESG funds as well as President Biden’s commitment to climate change relief are all catalysts that have driven interest in socially conscious investing, says K. Stuart Peskin, a portfolio strategist at Heritage Financial Services.
Peskin also stresses the fact that investors are taking a more active role in researching their investments, paying particular attention to “greenwashing.” He says that investors now know that a high ESG score is not necessarily correlated with their “values.”
“I see people and clients far more engaged with sustainable and ‘positive’ investing, and expect the enthusiasm to grow as awareness and opportunities to invest according to your values becomes easier and easier,” says Thomasson. “An ESG portfolio is the first step.”
What ESG investing looks like going forward
As more and more people become interested in ESG investing, Peskin foresees “improved reporting” that will provide more thorough information to investors about different funds.
“On the horizon is much improved reporting that shows investors the difference of a standard fund versus and an ESG fund,” he says. “For example, investors will be informed (and appreciate knowing) how much less CO2 emissions their ESG fund holds versus a close ‘standard’ alternative fund.”
Thomasson also anticipates increased interest in socially responsible investing going forward, as young people are becoming more aware and invested in different causes.
“But now, it’s cost-efficient for an advisor like me to create a well diversified, passive stock portfolio that excluded fossil fuel producers, inhumane treatment of animals, and greedy labor practices, while using the lever of the shareholder vote to force actions on major companies and boards in alignment with your values, like increasing representation of women, people of color, or disabilities, for example,” she says.
TUNE INTO THE HERMONEY PODCAST FOR MORE ON ESG INVESTING:
- Investing For Good, With Nicole Connolly
- How Your Investments Can Impact Change
- Ethical Investing with Megan Schleck
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