Skip to main content

ESG Investing: A growing strategy for socially responsible investing

ESG investing concept illustrated by a row of stacked coins with seedlings growing from the top

Growing awareness around social and environmental issues is impacting the way people are choosing to invest their money.  More and more, investors want their investment portfolio to align with their financial goals as well as their values. This is similar to other money decisions we make every day.  For example, when we consider our personal spending and saving goals, we often align them with our priorities and what is important to us. This could be saving for a child’s education or putting money aside to fund our health goals.  

Making investment decisions by evaluating a company’s social impact and values is known as socially responsible investing (SRI).  This can include researching a company or fund’s engagement in social causes, their clean energy initiatives, and their commitment to safe and equitable working conditions, just to name a few. Making a profit is only one goal of SRI. Investors following this strategy also want to impact and affect social change.

To help with investment decision-making, socially responsible investments are often considered and evaluated through an Environmental, Social and Governance Investing (ESG) lens. While socially responsible investing and ESG investing may be used interchangeably at times, ESG integration is just one approach to help investors evaluate companies and make socially responsible investment decisions.  

In this guide, we take a closer at the role ESG can play in socially responsible investing. 

What is ESG? 

ESG factors help investors consider non-financial factors when evaluating an investment. Evaluating investments through an ESG lens can help an investor better understand a company’s strategy, their exposure to risk, and how they manage this risk to gauge their long-term profitability and sustainability. ESG investing is increasing in popularity as people (and the media) focus on topics such as climate action and social fairness issues.  

The table below details some of the factors that can be considered when applying an ESG investing strategy:

Environmental Social Governance
Effect on the environment (can include the good and the bad actions and behaviours of a company) How a company deals with its employees, community, clients, suppliers, other stakeholders and society in general How a company is managed 
  • Climate change and green house gas emissions
  • Carbon footprint
  • Recycling programs
  • Water and waste disposal
  • Wind and solar energy
  • Use of environmentally friendly technologies and products
  • Diversity and equality in hiring
  • Treatment of employees (pay scales, perks or bonuses, training opportunities, staff turn-over)
  • Sexual harassment policies
  • Use of ethical products and services
  • Mission and value statements
  • Stance on social issues
  • Indigenous reconciliation and inclusion
  • How much executives get paid, including bonuses and perks
  • Diversity and inclusion within management
  • Staff and stakeholder communication
  • Conflict of interest procedures
  • Voting practices
  • Corruption and bribery

 

Using ESG Criteria

Here are some things to consider when adding ESG criteria to your SRI decisions:

  1. Gather any reports, statements and company research to help you get a clear picture of the company’s ESG stance.  A great place to start is reading the company’s sustainability reports as well as their annual proxy statements. These provide a better picture of how the company operates. Always make sure the information comes from a respected and verified source. 
  2. Be aware of “Greenwashing”.  Greenwashing is when a company or organization presents false or misleading information to make it appear as though they are environmentally responsible or sustainable when that isn’t exactly the whole picture. As ESG products gain in popularity, investors should do their homework, seek advice or a second opinion from a registered investment professional, and make sure the companies they are considering aren’t falsely using ESG to entice investors.
  3. When looking at the data, be sure the numbers add up.  Is the company really making improvements with respect to ESG?
  4. Keep up to date on media about the company.  Whether the information is good or bad, knowing what the world is saying about the company can help inform your decisions. Again, be sure to seek verified and unbiased sources of information.  
  5. Seek help if needed.  A registered investment advisor with ESG screening expertise can also help you make informed decisions to match your goals and values.  Before working with an advisor, check to see if they are registered with FCNB.  To learn more about working with financial professionals, visit FCNB’s Working with a Financial Professional webpage.
  6. Take the time to do your research. If you are investing without the help of an advisor, you still need to do your research. Take the time to fully understand the investment, including the risks, before making any investment decision. 
  7. Be aware of frauds and scams.  Fraudsters tend to follow the headlines. Some unscrupulous opportunities may use a lot of buzz words, slick looking websites or falsified documentation to lend an air of legitimacy. Be wary of “too good to be true” opportunities presented as a sure thing.  
     

What is the bottom line?

With more readily available information and the increased emphasis on companies making socially responsible decisions, investors are taking a more active role by choosing to invest in companies that reflect their moral stance. ESG investing exists to help investors examine the values of the companies and organizations they invest in and learn how they contribute to making our world a better place.  Make sure you understand the company and that the information the company discloses is complete and meaningful.  It is up to us as investors, and smart consumers, to know where our money is going.