What is ESG investing?
Written by Troy Young
In recent years, ESG (Environmental, Social, and Governance) investing has become increasingly popular. ESG investing is a style of investing that focuses on sustainability, corporate social responsibility, and ethical standards. This type of investing is not only about making money but also about making a positive impact on the world.
At its core, ESG investing is about looking beyond traditional financial metrics when evaluating investment opportunities. It focuses on factors such as a company’s environmental record, its commitment to social issues, and its governance policies. By considering these additional factors, investors can make more informed decisions about their investments and ensure that their money is being used in a socially responsible way.
For example, a company may have a strong financial performance, but if it has a poor environmental record, ESG investors may choose to invest elsewhere. Similarly, if a company has a strong environmental record, but its governance policies are lacking, ESG investors may look elsewhere.
How does ESG investing work?
Ultimately, ESG investing is about seeing your money invested in a manner that aligns with your own personal values. For some people, this may be as simple as broadly avoiding companies and industries that cause harm. Whereas others may want to take a ‘deeper-green’ approach and see their investments make a positive impact on issues that are meaningful to them.
The below chart from the Responsible Investment Association Australasia (RIAA) provides a good overview of the various ESG approaches that make up RIAA’s ‘Responsible and Ethical Investment Spectrum’:
What is greenwashing?
As more investors become conscious of ESG factors in their investments, the issue of greenwashing has become an increasingly important issue. Greenwashing refers to the practice of making false or misleading claims about the sustainability of a product, investment, or company to make it appear more ethical than it actually is.
Fortunately, there are steps investors can take to avoid greenwashing when it comes to ESG investing.
First, investors should thoroughly research any company they are considering investing in to ensure that the company’s claims about its ESG initiatives are accurate. Additionally, investors should look for third-party verification of any ESG claims a company makes, such as certifications from external organisations or independent research reports.
How we can help
At Harbour Wealth Management, we have access to a range of resources to help you make informed decisions on your ESG investing journey. Our licensee, RI Advice Group, provides research on a broad range of ESG investment solutions for our clients. We also have access to regular updates on the ESG investment space from RIAA, including their database of ‘Certified Responsible Investments’.
If you would like to arrange a time to speak with Troy Young for more information on how we can help, please contact our office on 02 6651 2000, or at info@harbourwealth.com.au.