In the investment world, you may have been hearing the term “socially responsible investing” a lot more often lately. Sometimes called impact investing, it’s a strategy that is increasingly being adopted by socially and environmentally conscious investors .
“This kind of investing is now referred to as ESG investing,” says Patrick Costello, who is the founder, president and CEO of Green River Sustainable Financial Services in San Anselmo. “This acronym stands for environment, social and corporate governance investing. That means that instead of just looking at the bottom line and whether a company pays good dividends, investors also focus on how the company addresses environmental and social issues, as well as how they treat their employees.”
Historically, investment professionals focus on the metrics of a business, such as short-term profit and loss and competitive position in the market. Now, with the rise of the ESG investment niche, attributes like workforce diversity, carbon footprint and the quality of employee benefits are almost on par with traditional elements, like stability and debt-to-earning ratio, as factors to consider before investing in a company.
“If a company treats their employees very well, they will naturally attract highly skilled and motivated employees who have a choice of where they want to work, giving companies an edge on their competition,” says Costello. “So making sure a company has good social practices in place before investing pays off down the road.”
Similarly, investing in companies that prioritize environmental concerns can produce long-term payoff for investors, as well. As the world moves away — albeit slowly — from an economy that has backed and relied on businesses that have high carbon emissions, it’s important to scrutinize the environmental impact of a company before investing.
“Throughout the world, we’re pivoting to a low-carbon economy,” says Costello. “So older companies like big oil and industries with a high carbon risk or carbon intensity begin to look like less lucrative long-term investments.”
It’s apparent how this one-two punch of being eco-friendly, while also making a profit on investments, is an attractive undertaking.
“ESG investing is a very small part of the marketplace,” says Costello, who’s Green River company was the first investment firm in Marin to focus solely on socially and environmentally conscious investments. “And 15 years ago, this was considered by some to be laughable. But we are now in a place where we must be sustainable or our planet will become uninhabitable.”
Getting involved in ESG investing does take a bit of research to make sure you’re choosing truly responsible companies to invest in, cautions Costello.
“We find the companies that truly live up to this standard,” he says. “We use mutual and ETF exchange traded funds, basically baskets of funds or stocks, to help investors put their money in a place where they can do good and also see a return on their investment.”
Now, on top of composting, saving water, and biking or walking instead of driving, we can add investing to our to-do list of working toward keeping our planet livable for generations to come.
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