What is ESG or SRI? Is it a good option for me?
March 20, 2023
You may have seen or heard about Socially Responsible Investing (SRI) or Environmental, Social and Corporate Governance Investing (ESG) and wondered if you should consider adding it to your portfolio. Over the past few weeks, I have received several client questions about SRI and his ESG investments.
When someone uses the acronym ESG or SRI, they are usually talking about strategies that assess different sectors of a business and focus on whether they are sustainable and responsible. You may also hear the term “impact investing”, but these have many overlapping and similar goals for choosing an investment strategy. All of these names and acronyms can mean different things to different people, but several resources have done research and analysis to standardize this evolving investment strategy. Sustainable and Responsible Investment Forum.
There are many factors to consider when adding ESG/SRI funds to your portfolio. Among 17 different categories, investors can choose to focus on specific aspects that align with their values. For example, someone might appreciate an initiative to address climate change. In this case, we may choose funds that focus on companies that promote alternative energy, or exclude companies that sell fossil fuels. On the other hand, there may be value in avoiding certain types of companies that sell tobacco or manufacture weapons.
One aspect that needs to be thoroughly evaluated is the underlying fees, which are often higher than non-ESG funds. The reason is that you have to pay people to analyze and evaluate what to include and what to exclude. One of the issues I’ve run into with a few clients recently is the fact that some of his ESG funds cost 5 times more than his non-ESG funds, but many of his top 10-20 holdings are the same. Do your homework (or ask for help) and see if you’re paying a premium for owning more of the same company.Do your research or contact MainStreet Financial Planning if you have questions. is important. If you’re interested in learning more about ESG/SRI investing, we’ve also included some helpful resources below.
means
this website is a great resource for checking out the 17 different sectors that make up ESG investing.
The Sustainable and Responsible Investment Forum has an Education Center, Free Online Course on Sustainable Investing.
Originally developed by Morningstar Sustainability evaluation system Helps you compare the sustainability of similar funds more easily.
Certified B Corporation Awarded to companies that meet rigorous standards aligned with ESG values.Their goal is to “measure a company’s overall social and environmental impact.”