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Ethical Investing 101: What ESG Stands For

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The word “investing” can be a scary one, and when you layer on concepts like “socially responsible” and “environmental, social and governance”, things can get even more complicated. 

But it doesn’t have to be that way. When it comes to investing, there are many factors that go into determining your success as an investor. Social responsibility has become increasingly important to today’s investors. 

There are many different ways you can incorporate these principles into your investing strategy. Understanding the ins and outs of what ESG investing means will help you see how it can benefit your portfolio.

What Is ESG investing?

ESG stands for Environmental, Social and Governance, and refers to investing with a focus on these three pillars:

  • Environmental – Companies that are proactive with their environmental practices can help contribute to a sustainable future. 
  • Social – Companies that show a commitment to the well-being of their workers and the local communities around them can create a win-win situation for all involved. 
  • Governance – Companies that are transparent with their actions and governance structure can provide peace of mind for their shareholders.

Why Is ESG Investing Important?

As the world becomes increasingly interconnected, it’s important to keep in mind the effects each of us has on the world around us. This is even more important when it comes to investing, as your money has power and can make a real difference in the world. 

When you invest, you’re committing a portion of your savings to a company or project with the expectation of profit

On the flip side, you’re also taking on some level of risk. While it’s important to be mindful of the risks involved in any investment, it’s just as important to select investments that adhere to your personal values and reflect your sense of purpose. When you invest with a focus on ESG principles, you can help promote positive change while still reaping the financial benefits.

How Does ESG Investing Work?

When you invest with an eye toward social responsibility, you’re selecting companies that are making efforts to address environmental, social and governance issues. This means you’re including a wider range of companies in your investment strategy, and you’re including factors beyond just profit when you’re making your investment decisions

For example, you might decide to add a utility company to your investment portfolio, even though the company offers a relatively low rate of return. The utility company may be an important part of your local community, and it may be working hard to reduce its environmental impact. 

By making your investment decisions based on a wider range of factors, you’re helping to promote positive change. In many cases, an investment in a company that’s actively working toward positive social and environmental change will also be financially rewarding.

The Benefits of ESG Investing

There are a number of benefits associated with investing with a focus on social responsibility. Some of these include: 

  • Actively promoting positive change in the world. 
  • The companies you choose to invest in will likely perform well over time because they’re operating with a focus on positive factors that go far beyond just profit. 
  • You can help reduce your carbon footprint. 
  • You can sleep better at night knowing that you’re making a positive impact with your investments.

Tips for Successful ESG Investing

When you’re incorporating social responsibility into your investment strategy, you want to be sure to do your due diligence. Research companies and their investments to see if they’re making important contributions to the world. Find out if a company has a solid track record for social responsibility by reading reports and review sites. 

You can also look for companies that provide third-party verification of their social and environmental efforts. Try and choose companies that offer socially responsible investment (SRI) products.

The Final Words

Investing can be a powerful tool for positive change in the world. By incorporating social responsibility into your investment strategy, you can promote positive change while also reaping the financial benefits. 

The world needs your help, and there’s no better time to get involved than right now!

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