Millennials are known for their commitment to sustainability and loyalty to companies that are making an impact. Through their spending habits and investment portfolios, many strive to make the world better for themselves, their communities and generations to come.
The concept of sustainable investing is not a new one; it has been around for more than 50 years. However, environmental, socially responsible and governance (ESG) investing has evolved over time. With younger generations contributing to this method of investing, the category has seen continued growth. According to Morningstar, ESG funds increased dramatically in 2019, bringing in nearly four times as much as the year prior.
ESG investing can be broken down in several ways. Common ESG investment areas include social equality, climate change and the environment, sustainable agriculture and food systems, gender lens investing, mindfulness and sustainability. Gender lens investing is an increased area of focus as larger companies make the shift toward a more diverse workforce and leadership. Additional ESG investments include companies with clean energy sources, a focus on building a collaborative and inclusive workplace, and the humane treatment of animals.
The shift to impact investing resulted from an increased awareness that investment dollars can shape companies’ behavior. Many early ESG investors believed ESG investing would not have the same results as traditional investments in terms of performance but would be worthwhile to improve communities and the world.
In contrast to early investors’ thoughts, recent studies have shown the performance of socially responsible companies is often just as good — if not better — than those in traditional indexes. According to Bloomberg, nine of the biggest ESG mutual funds in the United States outperformed the Standard & Poor’s 500 Index last year, and seven of them beat their market benchmarks over the last five years.
In the United States, companies are more culturally, politically and socially aware overall, and the performance of ESG and other investment portfolios are neck and neck. Internationally, however, companies who score well in terms of social responsibility often outperform their peers.
Investors should always be aware of the market and do their due diligence through research. If investing in an index fund, ESG investors should be aware of companies within that industry that may be participating in practices such as animal testing or polluting the environment. Investors can do their own research or work with registered investment portfolios to ensure investments are reflective of their convictions.
As impact investing continues to grow, it’s clear the “green” trend is here to stay. ESG investing is no longer reserved for the extremely wealthy and has become commonplace among investors at all levels. ESG investments are a good way to help individuals synchronize their wealth with issues of importance to them.
ESG investing gives those who want to make a difference the opportunity to change their community for the better. By investing in socially responsible companies, individuals often can accomplish the age-old aspiration of doing well by doing good.