ESG investing stands for environmental, social and governance in relation to your investments. This approach to investing started out as a socially responsible way to invest one’s money. It has evolved into a practical investment strategy that makes money by paying attention to how well a business is managed and how sustainable its practices are. The financial community has come to realize that ESG is a major force in the future of investing and has come up with many practical ways for the average investor to get involved.

How to Integrate ESG Into Investment Decision Making

While an investor may want to put their money into green energy or some other sustainable project there is the issue of just how to proceed, how to integrate ESG into investment decision making. There are three basic categories that an investor can apply. These are single score ESG rating, single-issue providers of data, and AI-driven high frequency data. The best first step is to consider where in the ESG realm you would like to invest and then proceed with your research.

ESG Investing Pros and Cons

Most investors would just as soon that their investments accomplished something good for the world as not. And investors would prefer to make profits with their investments. ESG investing pros and cons revolve around these two goals. As ESG investing matures it has become easier to find companies that satisfy ESG goals while returning a profit. It turns out that good governance typically goes with good social and environmental practices along with profits.

Advantages of ESG Investing

A good example of an ESG investment would be a company that is part of the switch from gasoline to electric vehicles. This change will help reduce emissions of CO2 and other combustion products of fossil fuels and eventually help stabilize the climate. From an investment point of view this is a growth industry and companies that develop more efficient battery storage technologies, practical solutions for charging vehicles, and better ways to extract rare earth minerals will create handsome profits for decades if not generations to come.

ESG Integration in Investment Management – Myths and Realities

One of the potential pitfalls for those getting into ESG investing is an investment with a great story but nothing of substance behind it. The expression “greenwashing” describes how a company can deceive potential investors with inflated promises while really only seeking to get their money. Luckily, as this investment niche has matured, one can invest in managed funds that have the time and expertise to evaluate ESG investment opportunities and sort out the good from the bad. When integrating ESG into your investment management looking for a balance between ESG prospects and reliable profits is a wise course to follow.

ESG Alternative Investments

When looking for ESG investments an investor can break down their search into the three categories. For environmental, water and air pollution, deforestation, carbon emissions, waste management, water usage, and green energy alternatives are all viable types of investments. In the realm of governance it is useful to look at political contributions, diversity of their board, their lobbying, and presence or absence of damaging lawsuits. In the social arena it is useful to look at their human rights record both domestic and foreign, policies regarding sexual harassment, security of data, and the diversity of their management staff.

Questions to Ask ESG Investment Managers

A long term investor like Warren Buffet only invests money in a company when he fully understands what the company does to make money and how their business plan will ensure future profits. Questions to ask ESG investment managers should follow the same course. What the company do? When will it make a profit and how much is expected? Precisely what aspects of the ESG world does the company focus on and how can you be assured that they on faithfully executing their stated ESG plan?

ESG Investment Philosophy

The wish to create a better world lies in each and every one of us. However, the constraints of the real world get in the way. We need to work, pay our bills, save for the kids for college and more. ESG investing is a practical way to make a difference by using your investments instead of your time and labor. The beauty of this approach is that well-chosen ESG investments make money. More money allows the ESG investor to make more ESG investments.