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A Contemporary Approach to ESG Investing Thumbnail

A Contemporary Approach to ESG Investing

ESG investing is growing rapidly.  If you haven’t heard of it, ESG stands for Environmental, Social and Governance.    According to the latest report from the US SIF Foundation[1], investors now consider ESG factors across $12 trillion of professionally managed assets, a 38 percent increase from 2016.  This number is poised to continue to grow.  

There are a few primary reasons why ESG investing is growing.  First, the world is changing.  Developed countries are facing demographic changes, the digitization of global economies is creating data and privacy issues, and whether or not one believes in the climate change narrative, it is creating a myriad of complex regulatory challenges for companies.  Second, a new generation of investors is emerging.  Over the next two to three decades, the millennial generation could put between $15 trillion and $20 trillion into ESG investments.[2]  And third, data and analytics are improving.  

But what is ESG investing exactly?

ESG investing is a term that often gets used synonymously with Socially Responsible Investing (“SRI”).   While the two are interrelated, we think there is an important distinction.  Responsible investing practices are traditionally associated with avoiding morally questionable businesses.  This can become extremely difficult to implement since what may be acceptable to one investor may be viewed as reprehensible to another.  

ESG investing, on the other hand, takes into consideration environmental, social and governance factors along with fundamental financial factors as part of comprehensive investment research process.  In other words, ESG investing isn’t about what is excluded from the portfolio, it’s about financially relevant factors that help identify investment risks and sustainable investment opportunities.

What is GBB’s approach to ESG investing?

In recent years, there have been a proliferation of investments that incorporate ESG analysis into the security selection process.  This includes both equity and fixed income investment strategies, which makes building well-diversified portfolios that integrate ESG much more feasible than it had been in the past.  Diversification is a cornerstone of the investment process and that continues to be true with our approach to ESG investing.

If you are interested in learning more, please reach out to an advisor at GBB at (916) 924-7527 or complete our financial advisor consultation form.

 

 

This content is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities, funds or strategies to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.  Different types of investing  involves varying degrees of risk and there can be no assurance that past performance is indicative of future results. 

[1] US SIF Foundation, “Report on US Sustainable, Responsible and Impact Investing Trends”, 2018

[2] MSCI, “Introducing ESG Investing.”, 2018

Please Note: Environmental, Social and Corporate (ESG) Investing Limitations. There are potential limitations associated with allocating a portion of  an investment portfolio in socially responsible mutual and exchange traded funds (the “Funds”) (i.e., Funds that have a mandate to avoid, when possible, investments in alcohol, tobacco, firearms, oil drilling, etc.). The number of the Funds are substantially few when compared to those that do not maintain such a mandate. The Funds could underperform broad market indices. Investors must accept these limitations, including potential for underperformance. Different types of investments involve varying degrees of risk.  Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by Genovese Burford & Brothers Wealth and Retirement Plan Management, LLC (“GBB”), will be profitable, be suitable for your portfolio or individual situation, or prove successful.  A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request.

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