ESG Investing in the Spotlight

Posted on 5-28-2024

This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article explaining environmental, social, and governance (ESG) investing and its potential effect on portfolio performance:

It’s probably safe to say that most people choose an investment with an eye toward adding financial value to their portfolio. Over the past two decades, however, many investors have added another layer of values in making investment decisions. The most common criteria are related to environmental, social, and corporate governance issues, typically referred to as ESG factors.

More recently, ESG investing has become controversial, primarily due to large institutional investors such as universities and pension funds using ESG factors to construct their portfolios. Critics say that this approach compromises potential returns, while proponents claim that better ESG practices may help lower risk and provide more stability without sacrificing performance.

As an individual investor, the choice to apply personal values to your investments is entirely up to you, and it may be helpful to know more about this approach.

What’s in a Name?

Values-based investing was originally called Socially Responsible Investing (SRI), and this term is still commonly used. Other terms, often using the SRI acronym, include sustainable and responsible investing; sustainable, responsible, and impact investing; or simply sustainable investing. The emphasis on ESG factors developed as a way to analyze companies in constructing funds or portfolios.

SRI and ESG are often used interchangeably, but some analysts see them as two separate practices. According to this view, SRI takes more of a pure values-based approach in screening potential investments; for example, it might screen out companies involved in tobacco, weapons, or fossil fuels extraction and screen in companies that produce “green” products or focus on financial inclusion or health. ESG looks at these factors more in terms of…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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