No matter which way you may lean politically, I'm sure we can all agree that a more peaceful world with clean air, energy and water is something worth working towards. Even if you are not looking for greener investing options right now, you’re going to want to start educating yourself because chances are high that a current client or prospect is looking for these options from you.
Let’s start with the easiest question, what is Environmental, Social, and Governance (ESG)? In the early days of socially responsible investing, managers and investors screened out, or “boycotted” certain companies, but now SRI has become a much bigger and broader global initiative.
For corporations, ESG means measuring and committing to sustainable business practices.
- E – Environmental factors - energy, carbon emissions and waste.
- S – Social criteria - for labor relations, management, employee diversity and inclusion.
- G – Governance – procedures and controls used to meet legal and ethical standards.
It’s also helpful for you to understand SDGs as we hear quite a bit about climate change and action, but climate action is only one (1) of the 17 goals set by the UN in 2015.
The United Nations created 17 Sustainable Development Goals.
Additionally, the Principles for Responsible Investment (PRI) were developed by an international group of investors, and they encourage institutional investors to adopt them:
- Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
- Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
- Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- Principle 4: We will promote acceptance and implementation of the principles within the investment industry.
- Principle 5: We will work together to enhance our effectiveness in implementing the principles.
- Principle 6: We will each report on our activities and progress towards implementing the principles.
According to the CFA Institute1 there is no one (1) exhaustive list of ESG issues and many times they are interlinking. Some issues, such as employee turnover at a company can be difficult to assign a monetary value to when analyzing a company.
These intricacies can make it difficult to build your own portfolios that suit your client’s needs while adhering to ESG standards.
At TPFG, we realized the importance of making ESG investing available for advisors to offer their clients long before they retire. Our ESG PLUS model portfolios include equity and fixed income strategists that focus on sustainability.
Learn more about our Strategy PLUS and ESG PLUS models HERE.
If you’d rather listen than read, learn more about our ESG solutions HERE.
Disclosures: The information provided herein is the opinion of The Pacific Financial Group (“TPFG”), a registered investment adviser, and may change without notice at the discretion of TPFG. Market Data is as of the time period noted and TPFG makes no warranties as to the accuracy of the information or any representations made or implied at any time given. The information should not be construed or interpreted as an offer or solicitation to purchase or sell a financial instrument or service. The information is for informational purposes only and should not be relied on or deemed the provision of tax, legal, accounting, or investment advice. Past performance is not a guarantee of future results. All investments contain risks to include the total loss of invested principal. Diversification does not protect against the risk of loss.
ESG Disclosures: Portfolios designed to address Environmental, Social and Governance (“ESG”) standards rely on the information provided by the funds and or underlying securities which comprise the portfolio. In building the portfolio, TPFG will use its best efforts to ensure the efficacy of the underlying fund's ESG discipline and adhere to the Portfolio’s stated ESG policy, but makes no assurances that the underlying funds or securities will continue to meet the stated standards. ESG investing incorporates many subjective factors which can be interpreted differently by different investors. Accordingly, investors seeking an ESG portfolio should carefully review the prospectus for each of the underlying funds so as to ensure the portfolio meets the investor’s environmental, social or governance expectations TPFG CID: 273