Socially responsible investing has evolved.
Now often called ESG, sustainable, or impact investing (ESG stands for environmental, social and governance), socially-aware investing has moved far beyond its early roots.
While ESG investing often does spotlight traditional environmental issues like climate change, fossil fuels, and renewable energy, a growing area of focus is on governance, including the question of executive pay and diversity.
“Income inequality remains the elephant in the room for asset managers who factor environmental, social and governance criteria into their investment decisions,” reports Jon Sindreu, writing for The Wall Street Journal.
Diversity and inclusion have become high profile and contentious issues as well.
Alex Bryan of investment data firm Morningstar agrees. Failure to take care of employees and treat them properly is “one of the biggest risks” that companies face, he argues.
Jerry Kerns, also of Morningstar, says key ESG issues like climate change, income inequality, and erosion of privacy pose real risks not just to the planet but to companies and their financial results. The coronavirus pandemic, and social change protests, have brought these issues even more to the forefront.
Responding to ESG pressures from investors, large firms are increasingly tying the compensation of top executives to corporate performance goals, including addressing gender and diversity imbalances.
Financial Planning Tip: If your values play a role in the kind of companies you want to invest in, ask us about socially-aware investment options. There is now a broad range of choices available, allowing you to support the causes you believe in. Supporters say that value-driven investing can often result in better portfolios, better performance, and align your values with your wallet.
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