By Roberta L Nestor
Everything looks a little different these days. And, while we are adjusting to the new normal in our everyday life, we might find ourselves adjusting to a new way to consider investing in the future—investing that will allow you to align your personal values and beliefs with highly ethical corporations. Today more than ever, investors are taking notice of how large corporations operate, how they treat their employees, and how they treat the environment. Investors are not likely to invest in companies that took advantage of the PPP (Payroll Protection Program) or large companies who have not supported their employees in providing safe and healthy work environments. Environmental, social and governance (ESG) factors are starting to play an important role for investors.
Socially conscious investing has been around for decades. In the mid-70s, there was a trend to avoid “sin” stocks. We have had investments that were geared toward “green” companies, those that were changing their business models to protect the environment and our natural resources. In 1971, there was an investment which aimed to redirect funds away from contributing to the Vietnam War. Today, the concept of socially conscious investing has become much more defined. The idea has expanded into investing in companies that have less risk involving environmental, social, and governance issues. There is a growing awareness and adoption of principles of corporate responsibility. As a result, companies are increasingly aware of how corporate responsibility is an influencer of brand value and consumer perception, which in turn affects a company’s financials.
Although no company had criteria for how they would respond to a pandemic, it is more notable than the ones that have not stood up to ESG standards. Recently, reports on large conglomerates and their treatment of their employees has brought attention to how companies treat the health and safety of their employees throughout the entire supply chain. That means everyone from the workers at the meat packing farms, to the truckers that deliver, to the employees at your local grocery store.
While there is an increased interest in ESG investing, there is also the fear of missing out on returns. In theory, any limiting of an investor’s opportunity set could have negative consequences. But in practice, investments screened on environmental, social, and governance criteria have performed well. An updated study (2018) of Morningstar’s 56 unique ESG-screened indexes showed their performance to be strong. ESG indexes also favor companies with healthier balance sheets, stronger competitive advantages, and lower volatility than their mainstream counterparts. These findings are consistent with other Morningstar studies observing that sustainable funds score well on factors linked to a positive long-term experience.
As we view our world from behind a face mask, ESG represents a positive view on how to invest your money in sustainable companies. Environmental stewardship is not only good for the planet, but it also allows for cost control, avoidance of damaging incidents, and stronger positioning for tomorrow’s economy. Proper treatment of workers benefits society and helps companies attract and retain talent. Good governance leads to better corporate decision-making. Companies that consider ESG ratings are strategic; they are focused less on beating next quarter’s earnings and more on creating an enduring franchise.
Investing in the stock market involves gains and losses and may not be suitable for all investors. The investment’s socially responsible focus may limit the investment options available to the investment and may result in returns lower than those from investments not subject to such investment considerations.
Roberta L. Nestor is a financial advisor practicing at 759 Boston Post road in Milford, CT offering retirement, long term care, investment and tax planning services. She offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network – a member FINRA/SIPC and a Registered Investment Adviser. Fixed insurance products offered through Nestor Financial Network are separate and unrelated to Commonwealth. Commonwealth Financial Network or Nestor Financial Network does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation. Roberta can be reached at Nestor Financial Network, 203-876-8066 or firstname.lastname@example.org.