Things to Look for in ESG Investing Firms

Dec 5, 2023 | ESG

In recent years, Environmental, Social, and Governance (ESG) investing has gained significant traction among investors who are not only seeking financial returns but also looking to make a positive impact on the planet and society. At Green Investment Strategies, we know that ESG investing firms have emerged to cater to this growing demand for sustainable and responsible investment options. If you’re considering incorporating ESG principles into your investment strategy, here are some key factors to look for in ESG investing firms.

Transparency and Disclosure: A reputable ESG investing firm should be transparent about its investment process and the criteria it uses to select ESG-friendly companies. Look for firms that provide clear information on how they assess environmental, social, and governance factors. Do they use ratings from reputable sources like Sustainayltics or MSCI? What are the ratings of the funds they recommend that you invest in?

Track Record and Performance: Evaluate the firm’s track record in ESG investing. Review the historical performance of the funds the firm recommends. It’s essential to strike a balance between ESG principles and financial returns. As Jerome Dodson, founder of Parnassus recently said, “In the final analysis, green investing has to be based on economic realities.”

Diverse ESG Criteria: ESG factors encompass a wide range of issues, from climate change to labor practices. A strong ESG investing firm should consider a diverse set of ESG criteria, ensuring a comprehensive approach to sustainability.

Active Engagement: Find out the funds your advisor recommends actively engage with companies in their portfolios to encourage positive ESG practices. Active engagement can lead to real change within companies and drive them towards more sustainable practices.

Alignment with Your Values: Your ESG investing firm should align with your personal values and objectives. Consider the specific ESG issues that matter most to you, whether it’s environmental conservation, social justice, or ethical governance.

Customized Solutions: Look for firms that offer customized ESG investment solutions tailored to your individual preferences and risk tolerance. One size doesn’t fit all in ESG investing, so flexibility is key.

Research and Analysis: A reliable ESG investing firm should have a strong research and analysis team dedicated to evaluating potential investments. You want an advisor who does the work to find and recommend funds with reasonable fees, strong performance, legitimate ESG integration (not greenwashing), sufficient assets to provide liquidity, and managers who have been there long enough to know what they’re doing (and for your advisor to be able to assess how well they’re doing it). They should recommend funds that assess potential investments for such academically-validated factors as valuation, quality, size, and dividend growth before adding them to your portfolio.

Costs and Fees: Understand the fee structure of the ESG investing firm. While you may be willing to pay a premium for sustainable investing, it’s essential to ensure that fees are reasonable and competitive within the industry.

Global Reach: Consider whether the firm has a global perspective. ESG issues and opportunities are not limited to one region, so a firm with a global reach can provide diversified exposure to good investments.

Certifications and Ratings: Check if the ESG investing firm or its employees have received any certifications or ratings from independent organizations. These can provide additional assurance of their commitment to sustainability.

Client Support and Education: Evaluate the level of client support and education the firm offers. ESG investing may be new to you, and a firm that provides resources and guidance can be invaluable.

Risk Management: Sustainable investing does not eliminate investment risks. Ensure that the ESG investing firm has a robust risk management strategy in place to protect your investments.

In conclusion, choosing the right ESG investing firm is a crucial step in implementing ESG investing strategies effectively. By considering these factors and conducting thorough research, you can align your investments with your values while aiming for financial success. Remember that ESG investing is not just about doing good; it’s also about doing well financially in a world that increasingly values sustainability and responsibility.
Investing in ESG is not just a trend; it’s a movement toward a more sustainable and equitable future. It’s true that this movement is in a rough patch right now, because Republican politicians attacked ESG investing and the war in Ukraine caused a spike in the price of fossil fuels that ESG investments typically have minimal exposure to. But that creates an opportunity to buy low. As the great investor Warren Buffet once said, it’s wise for investors “to be fearful when others are greedy and to be greedy only when others are fearful.” Take the time to find an ESG investing firm that shares your vision and commitment to positive change. If you’d like to learn more about ESG investing, contact us today!