WiserAdvisor – Blog

Main Menu

  • Home
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Estate Planning
  • More
    • Personal Finance
    • Portfolio Management
    • Financial Trends/Government

logo

Header Banner

WiserAdvisor – Blog

  • Home
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Estate Planning
  • More
    • Personal Finance
    • Portfolio Management
    • Financial Trends/Government
Financial Planning
Home›Financial Planning›5 Things You Should Know Before Investing in ESG funds

5 Things You Should Know Before Investing in ESG funds

By WiserAdvisor Insights
October 26, 2020
768
0
Share:
5 Things You Should Know Before Investing in ESG funds

Last Modified on October 26, 2020

ESG stands for environmental, social, and governance. As the name suggests, ESG investing offers investors the opportunity to invest in companies that follow the principles of ethical work practices, environmental-friendly operations, and socially responsible products. Most funds are evaluated based on their financial value. However, in the case of ESG funds, factors such as safe and fair workplaces, green practices, and an overall ethical code of conduct are given precedence. Hence, companies that produce or manufacture products like tobacco, arms and ammunition, alcohol, etc. do not find a place in ESG investing, regardless of how profitable they may seem at a given time.

If you are thinking of investing sustainably, here are 5 things that you should know before you invest in ESG funds:

1. ESG funds are good for the planet

The news of the planet approaching a slow death has been the talk of the 21st century. Development has eased lives, but it has also caused massive damage to the environment. Directly or indirectly, common investors too have contributed to this problem by investing their money in companies that negatively impact the planet. When you invest in the stock of a company, you become a participant in its growth. If this company indulges in practices that harm the Earth, you too, become a part of this destruction. The same can be said for companies that follow unfair workplace protocols, such as low wages, long work hours, lack of gender equality, ethnic, and sexual diversity, etc. However, there are organizations that are working towards the betterment of society at large. When you invest in funds from these enterprises, you promote their growth. The basic principle of ESG investing is to protect the planet and people and safeguard its future.

2. ESG funds are as profitable as other investments

The common myth surrounding ESG funds is that they are like charity. Many people believe that ESG investing is only limited to the rich and wealthy who may feel the need to give back to society. However, ESG funds are like any other investment where the focus on returns is as high as it is on sustainable investments. In fact, nine ESG funds had outdone the Standard & Poor’s 500 Index in 2019. Seven of these funds had also performed better than the market benchmarks of the last five years. The growing numbers are a clear indication of how these funds are no more only reserved as a way to pay back the planet. Instead, they are great products that offer high returns and can suit any investor and find a place in their portfolio.

3. ESG funds may be the future of investing

The current generation of youngsters and the ones to follow are greatly involved in sustainability. Over the last decade, many green businesses have come up. Products like vegan soaps, cosmetics, recycled clothes, etc. and businesses empowering minority communities, artisans, women, etc. have found a place in the mainstream. While the baby boomers focused only on development and progress, the youth of today is also worried about the downturns of this growth. This brings ESG funds right on the top. Their popularity has increased manifold in the last couple of years. This has also encouraged companies to adopt ethical practices. ESG funds outperforming the S&P 500 Index is a clear indication of where this spectrum of investing is headed.

4. There are no ESG standards yet

While ESG investing is gaining popularity, investors still continue to face some issues. One of these is that there are still no ESG standards to measure growth and allow estimations. This makes ESG funds a bit trickier than other types of investing.  ESG investing may also seem difficult to investors as well as some financial advisors, as they have to rely on their own assessment of funds and past data. Moreover, many businesses do not report and release information on their internal policies, for instance, gender equality, ethnic diversity, carbon emissions emitted in a year, sexual diversity, etc. at the workplace. So, there may be more viable ESG companies than you know of or can find to invest in. The lack of a set standard has had a considerable impact on ESG funds. Until there is a fixed standard for these companies, the process will likely require more research and time from investors and financial advisors.

5. ESG funds may lack diversification

The importance of diversification in investment cannot be stressed upon enough. Optimal diversification can lower the overall risk from your portfolio and offer you better returns and opportunities for profit. However, diversification and ESG funds may not always go hand in hand. ESG companies are generally limited to large-cap stocks. Hence, you lose out on the opportunity to invest in small-cap and mid-cap stocks. Moreover, ESG companies can be easily outnumbered by other businesses. Hence, it provides you with a smaller selection for choice. ESG investing also excludes many industries, such as arms, ammunition, alcohol, tobacco, etc. and is limited to industries such as hydro energy, recycled products manufacturing, solar energy, etc. This reduces the opportunity to diversify across industries and sectors. So, in case of a market downturn, you are exposed to more risk.

To sum it up

ESG funds do come with some drawbacks, but that is primarily due to the novelty factor attached to them. As time passes and there is more data available, investing in socially responsible companies and stocks will not only get easier but also more popular. There are many benefits of investing in ESG funds, and it offers you the peace of mind and a do-good factor that you are contributing to enhancing and bettering the world.

To know more about ESG funds and how you can invest in them, you can get in touch with financial advisors.

TagsDiversificationESG Fundfinancial planningInvesting
Previous Article

6 Important Financial Instruments to Make Your ...

Next Article

Does Your Advisor Need to Be Local ...

0
Shares
  • 0
  • +
  • 0
  • 0
  • 0
  • 0
WiserAdvisor Insights

WiserAdvisor Insights

A team of dedicated writers, editors and finance specialists sharing their insights, expertise and industry knowledge to help individuals live their best financial life and reach their personal financial goals. We believe that there is no place for fear in anyone's financial future and that each individual should have easy access to credible financial advice.

Related articles More from author

  • Emergency-Fund
    Financial Planning

    What should every 50-something know about an Emergency Fund

    August 19, 2019
    By WiserAdvisor Insights
  • Investment-Strategies
    Financial Planning

    Tips for Dealing with Failed Investment Strategies

    April 2, 2020
    By WiserAdvisor Insights
  • money
    Financial Planning

    8 Investment Mistakes That You Must Steer Clear Of

    October 17, 2019
    By WiserAdvisor Insights
  • Investment-Industry-Conflicts
    Financial Planning

    Potential Conflicts Within the Investment Industry

    December 24, 2019
    By WiserAdvisor Insights
  • Do's & don't Financial planning
    Financial Planning

    The Dos and Don’ts of Financial Planning

    August 28, 2019
    By WiserAdvisor Insights
  • Investment-advantage
    Financial Planning

    When Investing, Use Time to Your Advantage

    December 5, 2019
    By WiserAdvisor Insights

You might be interested

  • COVID-19 Pandemic
    Estate Planning

    COVID-19 Pandemic: Why It Is the Best Time to Plan Your Estate and Write a Will

  • Social-Security-Payment
    Retirement Planning

    What Is the Social Security Payment Schedule?

  • Estate-Plan
    Estate Planning

    Does Your Estate Plan Work?

Don't miss out! Get our Helpful Financial Tips Newsletter

  • Popular Posts

  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • retirement-accounts

    Choosing the Best Retirement Accounts

    By WiserAdvisor Insights
    July 8, 2019
  • financial planning DIY-Checklist

    How to Prepare an Annual Financial Plan – Financial Planning DIY Checklist

    By WiserAdvisor Insights
    June 10, 2019
  • IRAs-Work-401

    How IRAs work? 401k vs IRA

    By WiserAdvisor Insights
    July 4, 2019
  • Retirement-Planning

    Retirement Planning checklist

    By WiserAdvisor Insights
    July 8, 2019
  • Financial-Advisor

    Why and When do you need a Financial Advisor?

    By WiserAdvisor Insights
    July 8, 2019
  • Financial-Professional

    How to prepare for a meeting with your Financial Advisor

    By WiserAdvisor Insights
    July 8, 2019
  • monitor your financial advisor

    How to monitor the activities of your Financial Advisor?

    By WiserAdvisor Insights
    July 16, 2019

Categories

  • Business Finance (2)
  • Education Planning (25)
  • Estate Planning (16)
  • Financial Advisor Guide (15)
  • Financial Planning (97)
  • Financial Trends/Government (2)
  • Personal Finance (8)
  • Portfolio Management (36)
  • Retirement Healthcare (1)
  • Retirement Planning (67)

WiserAdvisor is America’s oldest and largest independent network of screened financial advisors. We make it easy and convenient for consumers to find and connect with advisors in their area. We have successfully helped over 100,000+ individuals find their best financial advisor since 1998 with no match fees, no commitments, no obligation, and complete confidentiality. WiserAdvisor has been featured in The Washington Post, The Washington Journal, ABC, CBS, Yahoo and has been seen in numerous other leading financial news and information websites.

Follow Us

  • Recent

  • Popular

  • ETFs

    ETFs 2021 Outlook: Things You Must Remember

    By WiserAdvisor Insights
    March 4, 2021
  • Asset-Based-Advisory

    Understanding Asset-Based Advisory Fees

    By WiserAdvisor Insights
    March 3, 2021
  • Financial-gifts-Children

    9 Best Financial Gifts for Your Children

    By WiserAdvisor Insights
    March 2, 2021
  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • retirement-accounts

    Choosing the Best Retirement Accounts

    By WiserAdvisor Insights
    July 8, 2019
  • financial planning DIY-Checklist

    How to Prepare an Annual Financial Plan – Financial Planning DIY Checklist

    By WiserAdvisor Insights
    June 10, 2019

Contact Us

Corporate Headquarters

12150 Monument Drive, Suite 700
Fairfax, VA, 22033

Business Hours

8:30 AM – 5:00 PM EST (Monday – Friday)

Email Address

wa.assistance@wiseradvisor.com

Phone Number

(703) 651-2060

Fax Number

(703) 259-4487

  • Privacy Policy
  • Terms & Conditions
© Copyright 2021 WiserAdvisor.com. All Rights Reserved.

Add WiserAdvisor - Blog to your Homescreen!

Add