Environmental, Social, and Governance (ESG) investing is an investment process that takes into consideration environmental, social, and governance factors, in addition to typical financial and economic considerations, when making investment decisions.


Below are some examples of common ESG issues and factors that investors can consider:


ENVIRONMENTAL FACTORSSOCIAL FACTORSGOVERNANCE FACTORS
Greenhouse Gas EmissionsPublic HealthBoard Diversity
Natural Resource ConservationLabor RelationsExecutive Compensation
PollutionHuman RightsShareholder Voting Rights
DeforestationPrivacyTax Strategy
Waste ManagementArmed ConflictInternal Controls

 

Why ESG Investing? 

ESG investing argues the notion that a company’s impact on the environment, its impact on society, and the governance structure by which it is run significantly affect the company’s profitability and sustainability. Investors around the world, both individuals and institutions, have increasingly implemented ESG evaluation into how they search for investment opportunities, believing that it is integral to evaluating the companies they invest in and the return they can receive.

Many investors also want to use their power as capital allocators to influence corporate behavior and industry trends. With the advent of social media and greater global connectivity, there has been much greater awareness of problems around the world and in society, and how companies and industries impact those issues. Investors large and small now understand that they can try to effect change by directing their money to a desired outcome through companies that practice responsible stewardship relative to ESG issues.

Assets invested with an ESG mandate recently reached over $17 trillion in the United States*, accounting for more than 33% of the total U.S. market.

ESG investing was heavily bolstered in 2004 when the United Nations organized financial management institutions to seek out ways to integrate ESG consciousness into capital markets, in an attempt to help alleviate those ESG problems that impact the globe. As a result, the U.N. developed the Principles of Responsible Investing, which asset managers can now declare their adherence to, committing to specific guidelines around how to appropriately and efficiently integrate ESG into their investment processes and way of doing business.**

ESG investing and its variants are known by many names. Here are some other synonymous names you may hear it be referred to as:

  • Socially Responsible Investing
  • Values-Based Investing
  • Sustainable Investing
  • Impact Investing
  • Responsible Investing

 

Approaches to ESG Investing

There are many ways to approach ESG investing, and indeed many investment managers incorporate one or more of these methodologies into their ESG process:

  • Screening for companies that have a strong performance record on ESG issues and avoiding those that do not
  • Seeking companies that are currently not ESG best-in-class companies, but show promise, with the hope of engaging with them and improving their ESG impact
  • Emphasizing a thematic concept, like renewable energy or women’s empowerment
  • Excluding certain industries or products from their portfolio deemed to be damaging on an ESG basis, potentially on moral or religious grounds

 

ESG Investing and Returns

Early on, the popular conception was that if you wanted to do right by considering ESG issues or promoting sustainability, you inevitably should expect lower returns than the average investor.

However, numerous studies from many well-known financial institutions now suggest that investors do not have to sacrifice, and can even improve, returns when incorporating ESG considerations into their investment process.

Here are a few organizations that performed such research and their findings:

 


 

Working with Janney

Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.

When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts. For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

By establishing a relationship with a Janney Financial Advisor, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences. Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.

 


 

Disclaimer

This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.

Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within. Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

The examples provided are all hypothetical and do not take into account any specific situations. The hypothetical examples are provided to help illustrate the concepts discussed throughout and do not consider the effect of fees, expenses, or other costs that will effect investing outcomes. Any actual performance results will differ from the hypothetical situations illustrated here. Please consult a professional to help you evaluate your situation before implementing any of the strategies discussed here.

 

US Forum for Sustainable and Responsible Investment (US SIF)
** Forbes.com – The Remarkable Rise of ESG

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

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