It’s not news that Gen Z and millennials are more environmentally conscious than their older generations. Whether it’s going zero-waste, eating plant-based diets, or driving battery-powered vehicles, younger generations are more willing to change their lifestyles in the name of sustainability.
So it makes sense that they’re applying these values to their investment portfolios, too. This is what environmental, social, and governance investing, aka ESG investing, is all about. The investing strategy that’s been gaining popularity lately is about choosing companies that align with socially conscious values.
People who invest in ESG companies choose companies that make the world better—or don’t make it worse. Sound good? Let’s dive into what it means to be an ESG company.
What makes a company environmentally-friendly?
The first factor under the ESG criteria is a company’s environmental footprint. There isn’t just one way for investors to find a company that’s contributing positively to the planet, though.
Investors looking for environmentally-friendly companies may look at a company’s energy use, waste, pollution, natural resource conservation, and treatment of animals.
The first category for ESG investing is environmental. Choosing companies with an environmental focus is popular with people who care about climate change, greenhouse gas emissions, and their carbon footprint. Investors should look for companies that have bicycle commuting options, active recycling programs, fair treatment of animals, and are conscious about waste.
Criteria for finding environmentally friendly companies can also include things like how much energy the company uses, how much waste or pollution it makes, and if it’s in compliance with government regulations.
How to pick a socially-conscious company
Besides finding environmentally friendly companies, investors are also wanting to make sure that they’re investing in companies with a social conscience.
So what makes a company socially-responsible? Look out for companies that support things like community, company culture, and issues that impact consumers, customers, and suppliers.
You can also find out how the company treats its employees by looking up reviews on Glassdoor; what its policies are on diversity, inclusion, and sexual harassment; if its received positive feedback on its customer service; or if it has a public history of lawsuits.
Look out for best practices
The last criteria on the ESG list is corporate governance. Assessing the way a company is governed gives investors peace of mind that they aren’t investing in a business that’s sketchy behind the scenes. Finding a company with reputable governance is all about assessing the integrity of how a company runs its business and making sure it’s founded on solid moral principles.
If you’re looking for a company that is solid in this area, check to see if it uses transparent accounting methods, that it doesn’t involve itself in illegal practices, and if shareholders are allowed to have their say about important matters.
Why is ESG investing so popular right now?
It’s easy to see why there has been a rise in ESG investing lately, especially with younger generations’ keen interest in social issues.
By investing in ESG companies, people can feel good about putting their finances towards companies who are doing good in the world—whether that’s through environmental and social responsibilities or trustworthy business practices.
Quantifying a company as an ESG investment isn’t necessarily about calculating criteria, but about choosing to invest in companies that align with their own socially conscious values.
When people think of investing, they usually think of picking companies that can give them the biggest returns, no matter what the company represents. However, the rise in people picking socially conscious stocks shows that more people are investing in companies doing good in the world.
At the end of the day, ESG investing is all about feeling good about where your money is going.