With more and more people becoming conscious of their investments, it’s essential to understand the differences between ESG and ethical investing. While both focus on making choices that align with your values, they involve different approaches and apply different types of investments.
This blog post will discuss what you need to know about each investment approach. Read on to learn the ways that ethical and ESG investing differ.
ESG Investing
ESG stands for Environmental, Social, and Governance investing. When making an ESG investment, one should consider the environmental impacts of an investment and social issues such as human rights and gender equality. One should also factor in corporate governance issues such as the board structure and executive compensation.
The goal of ESG investing is to invest in companies that are taking measures to promote sustainability and have good corporate governance practices. This type of investing is often called “socially responsible investing” or “impact investing” because it focuses on making positive changes in the world and humankind through investment decisions.
Ethical Investing
Ethical investing goes beyond considering ESG factors. It is about making choices that align with your values. For example, someone who believes in animal rights might choose not to invest in companies that test on animals or sell fur products. Similarly, someone opposed to nuclear energy might decide not to invest in companies involved in nuclear power production or uranium mining.
Ethical investments can range from stocks and bonds to mutual funds and ETFs, depending on the asset class to which you are looking for exposure. It is important to note that ethical investments may have higher fees than other types of investments since smaller teams or firms likely manage them with specialized knowledge of these areas.
How They Can Work Together
Both ethical and ESG investing are two essential strategies focusing on more than just financial performance. Combining these two forms of investing can provide greater diversification benefits while still adhering to organic investor objectives. For example, an ESG portfolio might contain stock from companies that are reducing their environmental impact or focusing on social change initiatives, plus companies noted for solid corporate governance structures.
Meanwhile, traditional ethical investments align capital with values such as renewable energy sources or social justice causes. As a result, these two strategies could be an excellent combination for investors looking to maintain an ethically focused portfolio that achieves higher-than-average returns.
Differentiating Between Ethical & ESG investing: Wrap Up
When it comes down to it, there is no one-size-fits-all approach when it comes to investing. Everyone has different goals and values when it comes time for them to make an investment decision.
That said, understanding the differences between ESG and ethical investing can help you make informed decisions about how you want your money invested—and how those investments will impact the world around us. So be sure to do your research before committing any money to ensure your money is going towards something that reflects your values.
