What Are ESG Stocks and Should You Be Going Greener With Your Portfolio?
Key takeaways
- ESG stands for environmental, social and governance
- You can invest in ESG stocks, bonds and trusts to help the planet while building wealth
- There isn’t a standard criteria for ranking companies’ ESG efforts, so buyers beware
ESG: you might have heard your company bandy the term about, but you probably don’t have a clue what it actually means — or that it can benefit your portfolio, too. As public concern grows over the environment and social issues, ESG stocks have cropped up as an attractive option for investors. Here’s the lowdown on what they are and how you can make them part of your strategy.
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What are ESG stocks?
ESG stands for environmental, social and governance. The whole concept is that you’re investing in companies that are helping rather than harming the planet and growing your portfolio at the same time.
Different companies are assessed and given an ESG score, which determines how much that business is making a positive impact on the world. Different companies will have different assessments for companies, so it’s important to do your own research and make your mind up based on your investing strategy.
ESG investing can bring higher returns than traditional investing, especially as more governments ramp up their net zero strategies and the world transitions to renewable energy. Not to mention you get that fuzzy, feel-good feeling about putting money into companies making a difference.
Because it’s three categories under one headline, ESG stocks can be pretty wide-ranging in scope. You could choose to focus more on one part of ESG than the others or apply a balanced criteria to your investment strategy.
How to include ESG in your investment strategy
There are individual company ESG stocks you can invest in, but you should aim to take it a step further and look at bonds, ETFs and trusts to help diversify the ESG segment of your portfolio.
The S&P 500 ESG Index is a straightforward way to build wealth while doing good for the planet. It includes companies like EV carmaker Tesla, the usual Big Tech suspects like Apple, Google and Microsoft as well as healthcare companies like United Health. The index has grown over 10% in value this year, with an average 2.69% one-year return.
The Calvert International Responsible Index Fund and the Pax World Funds are two examples of popular ESG funds you can invest in. But overall, there isn’t one standard criteria so a balanced portfolio is always a good idea.
The bottom line
ESG stocks are growing in popularity because they let investors put money into companies tackling climate change, social issues and effective governance. But because there isn’t one single criteria for companies to comply with, it’s always worth doing your own research on companies and investing in businesses that reflect what matters to you.
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