3 Profit Opportunities for the ESG Craze
Dear Rich Lifer,
Yesterday’s edition of Rich Life Roadmap showed you why ESG (environmental, social, governance) investing has become incredibly popular on Wall Street — so much so that funds managed with ESG strategies grew to $17.1 trillion at the beginning of 2020!
Now that you have some background on this accelerating trend, it’s time to make money from it.
So today, we’ve got actionable advice on how to add these investments to your portfolio… and begin reaping the benefits.
Bulking up your portfolio with ESG investments doesn’t need to be difficult! There are more ESG investment opportunities than ever before.
In fact, a report from Morningstar revealed that assets in ESG funds jumped 17.8% in the first quarter of 20210 compared to the fourth quarter of 2020.
It’s time to get in on the action… So the first thing to do is decide if you want to be in charge of the account yourself or find a robo-advisor or financial advisor to assist you.
Find Profits With These Valuable Resources
If you are interested in building your own portfolio, start reading up on a company’s sustainability initiatives and look up various outlet’s “best of” lists of the top ESG-rated stocks each year.
These lists are a great place to find investments that align with your goals and allow you to build a diversified portfolio.
If hunting for specific stocks sounds daunting, you can also consider investing in funds, which saves you the hassle of picking individual companies. It’s easy to find highly rated ESG-centric ETFs and mutual funds from multiple brokerages and fund families. Just check out ESG Screeners (like this one from Morningstar) and search “ESG” as a keyword.
As You Sow is another great tool that reveals companies’ involvement with fossil fuels, deforestation, and other issues. B The Change is an incredible source that breaks investments into five categories: those best for the environment, community, governance, workers and customers.
If you like the idea of a DIY approach but want some additional help, a robo-advisor that offers ESG-conscious portfolios could be the right choice.
Some robo-investors with a good eye for ESG investing include Betterment, Ellevest, Wealthsimple, Sustainfolio, Earthfolio and OpenInvest.
Fees with robo-investing may be higher and will likely result in investments you could find on your own with a little extra research. However, you gain expert-level investment research and automated investment management.
ESG Financial Advisors
Working with a financial advisor adds an extra level of expertise and detail that a robo-advisor could miss.
A financial advisor can get a wider scope of your entire financial life and help you tailor your personal values to find aligning ESG investments. The costs for this will definitely be higher than a robo-advisor, but you are getting a hands-on relationship and ally to help you make decisions.
If you already have an advisor, they should be able to guide you toward investments with high ESG ratings. If you are looking for an advisor, ask candidates about the ESG options they have offered to clients in the past.
Understanding ESG Ratings
As we mentioned last week, ESG investments are judged off of specific criteria, resulting in a “score.”
Different companies use different methodologies. Some of the most widely followed ratings come from Bloomberg, S&P Dow Jones Indices, JUST Capital, MSCI and Refinitiv.
Generally, scores follow a 100-point scale, the higher the score, the better the company is performing in fulfilling ESG criteria. That’s not always the case, so you’ve got to do your own research as well. For example, MSCI uses a “leading vs lagging” scale to assign a “letter” score ranging from leader (AAA, AA) and average (A, BBB, BB) to laggard (B, CCC).
While each metric may be slightly different, ESG rating firms all incorporate similar factors such as annual reports, corporate sustainability measures, resource/employee/financial management, board structure and compensation.
That’s a lot to take in, and the lack of uniformity in ESG scoring can certainly be confusing.
So we’ll leave you with a few of the best ESG funds to get you started…
If you are environmentally focused, take a look at iShares Global Clean Energy ETF (ICLN), which tracks the S&P Global Clean Energy Index, providing exposure to companies pursuing renewable resources.
If you are interested in social ESG investing, consider Vanguard FTSE Social Index Fund Admiral (VFTAX), which is an affordable option that works only with companies with clean labor and human rights records.
Finally, if corporate governance is your passion, check out iShares ESG MSCI USA ETF (ESGU), which subjects each of its investments to a corporate governance review.
We hope we have given you a great starting place to conquer the world of ESG investing! Now is the time to align your finances with your worldview; there’s no time like today to get started.
To a Richer Life,
The Rich Life Roadmap Team