Ethical investing is about more than just having a good night’s sleep — it’s an important step towards bettering the planet. In fact, investing with a conscience is now a $30 trillion market and seems to be on an upward trajectory. The term is “ESG Investing” and looks at the environmental, social, and governance (ESG) aspects of the business. If you’re already concerned about only drinking fair-trade coffee, eat only organic foods, and have swapped out your gas guzzler for an electric car, it’s basically just diverting your investment funds behind the scenes.
Find Your Investment Risk Tolerance
Before you take the plunge to take on any type of investment product, it’s important to know just how much of a risk you’re willing to take. If an investment doesn’t say that it’s guaranteed, you need to assume that there is risk. While ESG investments focus on sustainability and are increasing in popularity, it’s important to remember that markets can shift at any time.
Discuss your risk tolerance with your financial advisor and bear in mind that investing is not a get-rich-quick plan. The higher the risk of the investment you’re entering, the longer the term should be in order for you to be able to ride out the fluctuations. It helps to know that all businesses are under tremendous pressure to fall within this category, whether they started out as ESG companies or not.
Decide On The Investment Type
While it may seem like a good idea to throw all your cash at the best-performing investment, you may be in for some trouble if the market does an about-turn, such as during the 2008-2009 market crash and 2020 pandemic. Instead, research the benefits of a mixed basket of investment products to make the most of the markets in all conditions. It’s important to ensure that every product you invest in, ticks the boxes when it comes to the ESG investment criteria. For instance, mutual funds are made up of a whole range of different funds, and that means ensuring that each fund within the mutual fund adheres to ethical standards. You may also want to place your funds into individual stocks or bonds, which may be a little simpler to confirm the ESG standards.
Keep An Eye On Your Investment Performance
Just because a fund falls into the ethical category, doesn’t mean it’s not susceptible to all the other issues that may plague other funds. It is, therefore, important to keep an eye on the markets and make changes when needed. For those who are new to investing, it’s important to deal with a reputable investment firm or financial advisor. It may also be in your best interest if the firm itself is dedicated to sourcing and supporting investment opportunities that follow the ESG criteria.
Getting started in ESG investing is a lot simpler than it seems. With more and more firms and funds dedicated to these standards, it’s a market worth watching.