By Tom Sedoric and Casey Snyder

In our 2021 Outlook presentation, we touched briefly on the concept of ESG (environmental, social, and governance) investing and the important role this trend will hold in our world’s financial future. The ESG wave, as it’s known among investors, is growing rapidly as more people and companies put a greater emphasis on the importance of aligning investment monies with values. 

Since 2019, assets managed in the United States with ESG considerations have increased by 42%—we’re talking billions of dollars... And that’s for good reason“Environmental, social and governance (ESG) themed investments have become one of the best performing investment categories in recent years, paving the way for continued growth of this strategy.”

The Sedoric Group is committed to our Seacoast community and to building a stronger, healthier, and more financially independent world. With that in mind, we feel that it’s our responsibility as fiduciaries to educate our audience on ESG investing and outline the opportunities that come along with it. 

What is ESG Investing?

ESG investing—which is sometimes referred to as sustainable investing—empowers investors to support causes they care about and divest from industries that could potentially be harmful to our world. Investors may choose one or several causes to focus their efforts on depending on their passions and core values. 

There are three key criteria for how companies are evaluated for ESG investing: 

  • Environment: How is this company impacting the environment? Look at the company’s carbon footprint, identify any toxic chemicals used in its manufacturing processes, and any sustainability efforts the company makes.
  • Social: How does the company improve its social impact internally as well as within its community? Look at the company’s stance on racial diversity, LGBTQ+ equality, inclusion programs, and hiring tactics. You may also examine how a company promotes social progress in the larger community or in the world. 
  • Governance: How is this company, its board, and its management driving positive change? Look at the company’s response to issues surrounding executive pay, diversity in leadership, and relationships with employees and shareholders.

Until quite recently, ESG was considered a niche investment strategy, riddled with vague terms and definitions for ESG. There was no clear way of determining from one company to the next what impact they were making—if any at all. Today, as standardization becomes more commonplace, investors can better gauge the impact their investment—or divestment—is making on the world. 

An Example of ESG Investing in Action

Consider your own values and beliefs. What matters to you? Perhaps you’d like to promote women in leadership and you want to increase disability inclusion in workplaces. On the other hand, it’s equally important that your money isn’t getting into the hands of industries or companies you don’t support, such as pipeline drillers or fossil fuel producers. 

With ESG investing, your fiduciary will help you develop a custom strategy which reflects your core values. Visa is a great example of a company that supports women in leadership (50% of its executives are women) which could appear in such a portfolio. No two ESG portfolios are the same, which is part of their beauty.

Why You Should Care

One question we’re always asked by clients interested in ESG is, what returns can I expect? The answer varies, as it does with any investment strategy, but just one look at ESG return trends indicates that it’s a sound strategy for investors in the marketplace today. As we reported in our 2021 Outlook, “63% of large blend ESG managers outperformed the S&P 500 over the last 12 months, and 46% outperformed over the last three years.” That’s hardly a figure to turn a blind eye to as you create your own investment portfolio.

Beyond the obvious benefit of strong returns, ESG also offers an opportunity to drive real, meaningful change in our world. Younger generations are increasingly invested in promoting positive social progress and protecting our environment, and ESG as an investment tactic gives them the ability to “vote with their dollar,” so to speak. The Sedoric Group believes that ESG is a powerful agent for change and shouldn’t be dismissed as a passing fad.

ESG investing is here to stay—and we couldn’t be more enthusiastic about it. For more ESG insights, download our guide to sustainable investing.

Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Sustainable/Socially Responsible Investing (SRI) considers qualitative environmental, social, and corporate governance, also known as ESG criteria, which may be subjective in nature. There are additional risks associated with Sustainable/Socially Responsible Investing (SRI), including limited diversification and the potential for increased volatility. There is no guarantee that SRI products or strategies will produce returns similar to traditional investments. Because SRI criteria exclude certain securities/products for non-financial reasons, utilizing an SRI investment strategy may result in investment returns that may be lower or higher than if decisions were based solely on investment considerations. Investors should consult their investment professional prior to making an investment decision.