Environmental, social, and corporate governance (ESG) is an evaluation of a firm’s collective conscientiousness for social and environmental factors.
ESG investing is commonly known as ‘socially responsible investing’ or ‘sustainable investing’, where investors prioritize ESG factors or outcomes. Investments are made with consideration of the environment and human wellbeing, as well as the economy.
Over recent years, there’s been a significant rise in ESG investing, helped along by the recent COVID-19 pandemic, where many people have recognized the trend between social, environmental, and economic issues.
In this article, we’ll explore the reasons for and against becoming an ESG investor, weighing up the advantages and disadvantages, to help you make informed decisions before embarking on your next investment venture.
Advantages of becoming an ESG investor
There are many advantages of becoming an ESG investor. Not only can you invest in the things you may believe in, and feel most strongly about, but you can use your capital to make a real change in the world.
By becoming an ESG investor, you’ll also be rewarding ethical companies, helping to fund their changes, and hopefully making a return on your capital, as ESG issues become more prominent in society. This will therefore allow you to rest assured, knowing that you’re investing in a socially responsible, and ethical way.
Disadvantages of becoming an ESG investor
Some disadvantages, however, might prove that ethics could become more important than the performance of your stocks. A crucial trading strategy is to not let your emotions fuel your trading decisions, and when investing in something you feel strongly about, this could be made slightly harder.
On top of this, many companies may claim to be socially responsible, but don’t actually take any actions to prove this. You should do your research and make sure that the company you’re investing in has proven they’re in it for the long haul.
Examples of ESG investing
There are very few areas of business operations where ESG is not relevant. Just some examples of ESG issues include:
- Climate change
- Waste and pollution
- Biodiversity
- Human rights
- Working conditions
- Equal opportunities
- Business ethics
- Compliance
Investors might be influenced by organizations’ efforts to implement any of these things. And if you want to find out more about how to start stock trading with ESG in mind, then here are some of the best ESG stocks to invest in, at the time of writing, to get you started:
Salesforce (CRM)
Salesforce provides customer relationship management software, which are applications that help businesses to use their customer information, to sell more products and services. They’re targeting 100% renewable energy by the fiscal year 2022, and have already achieved net-zero carbon emissions. On top of this, the company has established racial equality and justice task force, spending $16 million on equal pay initiatives.
Nvidia (NVDA)
Nvidia is a company that makes graphic processing units used in gaming consoles, supercomputers, robots, and self-driving cars. Nvidia is not only paving the way of the future, but its initiatives include treating people fairly, strengthening diversity and inclusion, as well as pursuing social change with its products. They have taken some key actions in recent years to ensure their initiatives are implemented.
Microsoft (MSFT)
Microsoft is the world’s largest software company, as well as being a dominant cloud platform provider, and a leader in energy efficiency. On top of this, they’re supported by a recent partnership with Volt Energy – a Black-owned solar company. By 2025, Microsoft hope to have 100% renewable energy, and by 2050, to have offset all the carbon emissions it’s produced over the years.
Best Buy (BBY)
Best Buy is one of the leading retailers of consumer electronics in North America. The company provides services to help design, set up, and maintain home media systems, home computing solutions, and more. In 2020, the company’s facility in Chino, California, achieved 100% waste diversion – and didn’t dump any solid waste in landfills. Best Buy has also committed $10 million towards the building of teen technology centers in Los Angeles, providing a space for young people to learn about programming, music production, and design.
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Whilst there are some disadvantages to ESG trading, it’s clear there are also many advantages. Of course, you should learn more about stock trading, and do some thorough research before investing. But with the ESG market rising significantly in recent years, sustainable trading is definitely a market worth keeping an eye on.
