Does socially conscious investing mean leaving money on the table? Not anymore, proponents say

Sustainable Investment no longer the Poor Cousin some say…

ESG investing has been a long-term trend in the investment world, which is just now on an incline as more companies and governments are taking notice. To ensure that your investments align well with your intentions, you will need to understand what the terms mean– ethical or socially responsible investing , sustainable investing or impact investment. In addition there’s no single clear cut strategy for all these different types of projects. Some may be worth pursuing if they have high returns but also carry risks (mining stocks). Others might produce lower rates but offer greater rewards. But one thing is clear: The future of sustainable investing is unclear, with many investors unsure how to proceed. Government regulators have given little direction and there’s no single clear-cut strategy for social or ESG stocks.

It all adds up to more attention paid to socially responsible investing, which also goes by terms including sustainable or impact investing or, more formally, investing based on ESG or environmental, social and governance policies.

Most people don’t like to sacrifice any more than they must. In the financial field, this often has translated into skepticism of socially conscious investing. For decades, the approach has struggled because of the perception that investors must give up some returns if they want to do good with their money. Investors will miss opportunities, the reasoning goes, if they avoid tobacco or alcohol stocks or turn a blind eye to weapons producers, gambling companies or big polluters.

The newer viewpoint holds that bad corporate citizens are more likely to attract lawsuits, draw regulatory fines, suffer from poor employee morale or face other issues that lead to a poor public image and possibly reduced profits. Conversely, more upstanding companies often are named as good places to work, have favorable environmental reputations and are popular with customers for these and other reasons.

Social investing policies, like beauty, are somewhat in the eye of the beholder, as any two people might not attach the same importance to the same issue. Investors thus can screen stocks on their own, or they can buy into various mutual funds and exchange-traded funds that do the analysis and stock selection for them.

The Parnassus fund, for example, doesn’t invest in companies that generate more than 10% of their profits from alcohol, fossil fuels, gambling, nuclear power, tobacco or weapons. It also seeks out companies with good environmental practices and that treat their employees well, pursue diversity and practice other enlightened corporate-governance policies.

While some forms of social or sustainable investing have been around for decades — such as efforts to divest South African mining stocks during the apartheid era — interest has swelled over the past five or so years.

In short, the evolving thinking on socially-responsible or ESG funds isn’t that they are just about avoiding certain companies and sacrificing returns but also about pursuing attractive opportunities with upstanding businesses that follow favorable policies.

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Sustainable Investment no longer the Poor Cousin some say...

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