Susana Carrillo, now based in Alexandria, Virginia, highlights that it is important to do “business with impact” and not only centered on “profit making”. Environmental, Social and Governance (ESG) standards are becoming increasingly important factors to be integrated into private sector companies’ business models and demanded by socially conscious investors.
What Is ESG Investing?
Environmental, social, and governance (ESG) investing is a socially responsible investing that focuses on companies’ environmental, social, and governance practices. Proponents of ESG investing argue that companies with strong ESG practices are more likely to be financially successful in the long run. They can better manage risks and opportunities and have more engaged employees and customers.
Additionally, ESG investing can help create a more sustainable and just world. For example, companies that focus on reducing their carbon emissions can help slow the effects of climate change. Those who invest in employee training and development can help reduce income inequality. As more investors become aware of the financial and social benefits of ESG investing, this type of investment will likely become more mainstream.
How to Integrate ESG Into Your Investment Portfolio
Susana Carrillo says there are many ways to integrate ESG into your investment portfolio. The most common is investing in companies with strong ESG practices, either through an themed funds or by selecting individual stocks.
Another way to integrate ESG into your portfolio is to avoid investing in companies with poor environmental, social, and governance practices. This can be done by screening out specific industries, such as tobacco or gambling, or by avoiding companies involved in damaging activities, such as those that produce conflict minerals. Finally, you can use your voting rights as a shareholder to influence company policy on environmental, social, and governance issues.
The Benefits of Socially Responsible Investing
There are many benefits to socially responsible investing. First, it can help you align your investments with your values and be a contributor for improving the quality of life of consumers and societies and a more sustainable environment and world.
Second, ESG investing can provide financial benefits. Studies have shown that companies with strong ESG practices tend to outperform those without them and that sustainable investing funds have outperformed traditional funds over the long term.
The Risks of Not Considering Environmental, Social, and Governance Factors When Making Investment Decisions
Susana Carrillo says several risks are associated with not considering environmental, social, and governance factors when making investment decisions. First, you may miss out on financial opportunities. Companies with strong ESG practices tend to outperform those without them, so you may miss out on potential profits by not considering ESG factors.
Second, you may inadvertently support companies that engage in harmful environmental or social activities. For example, if you invest in a company without considering its environmental practices, you may keep a company polluting the air or water. Finally, you may end up taking on more risks than you realize. Many ecological and social issues, such as climate change or income inequality, can significantly impact the financial performance of companies and industries.
Tips for Getting Started with ESG Investing
If you’re interested in getting started with ESG investing, Susana Carrillo says you can do a few things to get created. First, research the companies in your investment portfolio to see how they score on environmental, social, and governance metrics. You can use sites like MSCI or Sustainalytics to find this information. Second, consider investing in an ESG-themed fund or ETF. These funds invest in companies with strong ESG practices and can be an excellent way to get exposure to the sector without picking individual stocks. Finally, talk to your financial advisor about incorporating ESG into your overall investment strategy. They can help you find ways to integrate ESG into your portfolio to align with your financial goals.
ESG investing considers environmental, social, and governance factors. It is essential because it can help you align your investments with your values, provide financial benefits, and create a more sustainable and just world. When making investment decisions, the risks of not considering environmental, social, and governance factors include missing out on financial opportunities, inadvertently supporting companies that engage in harmful activities to the environment or society and taking on higher risks.