While investing in socially and environmentally conscious companies is not a new concept, momentum for these types of impact investments has grown dramatically over the last few years. An ESG Portfolio can provide you with the social accountability and transparency you seek when choosing where to invest your funds.
What is ESG Investing?
ESG investing measures how investments or companies perform in the categories of Environmental, Social, and Governance. The concept is intended to create investment options that offer competitive returns for customers while simultaneously pursuing a socially responsible or ethical investment strategy.
ESG investing is sometimes used synonymously with “socially responsible investing,” or SRI. Historically, SRI investing has used an approach that filtered out investments deemed to have negative social effects (for example, a poor environmental record or labor practices compared to peers). ESG follows a similar template, but also seeks to include companies that are judged to have positive social effects.
What are the criteria for an ESG Portfolio?
Specific ESG criteria varies between different organizations. The Invest529 ESG Core Equity Portfolio invests entirely in the Parnassus Core Equity Fund. The fund invests in companies with attractive long-term performance expectations, while taking ESG factors into account. The key criteria the investment team looks for in its company–specific investment process are:
- future relevancy of a company’s products or services
- sustainable competitive advantages
- quality management
- attractive valuation.
How have ESG Portfolios performed?
ESG funds are still growing, but so far have performed in line with more traditional investments. For example, a S&P Global Market Intelligence analysis of ESG funds found that most of the funds surveyed beat out the S&P 500 (the stock market index that tracks the stocks of the 500 largest U.S. companies—the benchmark of the overall market) over the course of the COVID-19 pandemic. Many shareholders internationally are demanding to have more social and environmental action taken by the companies they invest in, resulting in a rise in popularity for ESG investing.
- ESG investing offers competitive returns for customers while pursuing a socially responsible or ethical investment strategy.
- Key ESG criteria–future relevancy of a company’s products or services, sustainable competitive advantages, quality management, and attractive valuation.
- ESG funds outperformed the S&P 500 in 2020-21.
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The examples above are provided for illustrative purposes only and are not intended to reflect or predict the actual performance of any specific investment. Virginia529 cannot and will not provide legal, financial, or tax advice, and nothing herein or in any other written materials shall be construed as such.
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