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The Pros & Cons of ESG Investing

October 24, 2022

ESG has gone from a niche investment philosophy to a mainstream investment tenant while gaining the attention of corporations, politicians, regulators, and investors.

ESG stands for environmental, social, and governance and is a way of investing in companies based on their commitment to one or more of these factors.

Should ESG be part of your investment strategy?

If your goals include using your investment dollars to impact the world around you, then maybe you should consider ESG as a factor in your overall portfolio construction.

Keep in mind that Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) investing has certain risks – the criteria exclude securities of certain issuers for non-financial reasons. Therefore, investors may forgo some market opportunities, reducing the number of available investments.

The case for ESG investing includes:

  • Influencing positive changes in society.
  • Potential for strong long–term performance, since socially responsible and environmentally sustainable companies may outperform companies that do not share those principles.
  • ESG companies tend to have above-average risk control and compliance standards.

The case against ESG investing includes:

  • Social responsibility and values investing are subjective, with no guarantee that a company or fund with a high ESG rating is actually in alignment with your values and views.
  • Some companies don’t live up to their promise, with one study showing that companies in ESG portfolios had worse labor and environmental regulatory compliance.
  • Companies may publicly embrace ESG as a way of diverting attention away from poor business performance.1

If you would like to learn more about ESG investing and the features, benefits, and risks of this market segment, please give us a call and we can set up a time to discuss. We have a number of resources in our office that help you better understand ESG investing.

All the best,

1, 2022