ESG investing: what it is, how it works and what the benefits are

Understand everything about ESG investment

Have you ever heard of ESG investments? If not, relax, I’ll explain everything in a very easy way. ESG stands for Environmental, Social and Governance. 

It’s a concept that has been gaining momentum in the investment world, especially in the United States, where investors are increasingly looking at companies that not only make a profit, but also do the right thing for the planet and for people. Want an overview of ESG investing? Then read on! 

What is ESG anyway?

Let’s break it down. The “E” in Environmental refers to how a company deals with the environment. This includes everything from reducing carbon emissions to the conscious use of water and proper waste management. 

The “S” for Social deals with how the company relates to people, employees, customers and the community in general. 

This includes issues such as diversity, fair working conditions and positive social impact. The “G” for Governance refers to the company’s management practices, such as transparency, business ethics and anti-corruption policies.

How do ESG investments work?

Investing on the basis of ESG criteria means looking beyond financial figures. Investors analyze how companies behave in relation to the environment, society and their own governance. 

For example, a company that invests in renewable energy, promotes gender equality in the workplace and maintains transparent management practices tends to be viewed favorably by ESG investors. 

This is because these practices indicate responsible and sustainable management, which can result in better long-term performance.

Why invest in ESG?

Now you’re probably asking yourself: “But what are the benefits of investing in ESG?” Well, in addition to contributing to a better world, these investments can bring interesting financial returns. 

Companies committed to ESG practices tend to be more resilient to crises, have a better reputation in the market and are able to attract more talent. All this can translate into solid financial performance. 

According to the Global Sustainable Investment Alliance (GSIA), the ESG market already represents around 36% of the world’s financial assets under management, totaling approximately US$ 35 trillion.

How do I start investing in ESG?

If you’re interested in aligning your investments with your values, the first step is to do some research.

Look for investment funds that have well-defined ESG criteria. In the United States, for example, there are several funds focused on sustainability. 

In addition, platforms such as MSCI offer indices that assess companies’ ESG performance, helping investors to make more informed decisions.

Is ESG just for big investors?

Many people think that ESG is something for large corporations or institutional investors, but that’s not true. Today, there are several affordable options for those who want to invest sustainably, even with little money. 

Apps like Betterment and Wealthfront offer ESG-focused investment portfolios, allowing anyone to align their values with their investments without having to be an expert in the financial market.

In addition, popular brokers such as Vanguard and BlackRock already offer ESG ETFs and funds, making access even easier.

How do I start investing in ESG?

If you’re interested in aligning your investments with your values, the first step is to do some research. 

Look for investment funds that have well-defined ESG criteria. In the United States, for example, there are several funds focused on sustainability. 

In addition, platforms such as MSCI offer indices that assess the ESG performance of companies, helping investors to make more informed decisions.

Conclusion

Investing in ESG is a way of making your money work not only for you, but also for the good of the planet and society. 

By considering environmental, social and governance factors in your investment decisions, you contribute to a more sustainable future and, what’s more, you can make attractive financial returns. So, how about starting to look at your investments with fresh eyes?

Written by

Juliana Raquel