There has been a growing movement among investors, to put their money where their mouth is by investing in companies that align with their morals and ethics. In this case, people who are interested in seeing responsible change around the areas of the (E) environment, (S) social justice and (G) governance, have started to buy “ESG funds”. The goal of these mutual funds is to buy into a set of companies that score well in these areas, while refusing to invest in companies that rank poorly. The basic notion - I am interested in being diversified across a set of companies, I want to have something that is managed, and I am interested in financially supporting companies that are aligned with my thinking.

Are you putting your money where your mouth is?

Did you know that buying a standard SP500 index fund, is putting money into cigarette makers, companies who hire child labor in foreign countries and gun makers?

To reach this objective, companies are scored based on how they measure up. MSCI is one company that provides a fairly standard measure. A mutual fund company will then invest in a set of companies that meet some criteria related to those measures. As an example, SUSL, a iShares ETF, only invests in companies that rate higher than “BB” in the MSCI ESG ratings. And expressly excludes companies deemed to be involved in problematic areas such as tobacco, alcohol, gambling, etc.

An interesting thing to note about many of these funds, is that they actually tend to perform as well as, if not better than the standard index/funds that invest in problematic companies.

You might think that it would be more costly to invest in these sort of funds. However, with a little research, you can find both super effective and inexpensive ETFs that meet ESG objectives, that actually have low expense ratios. Eg, SUSL, mentioned above, as a .10% expense ratio.

Yes!!! Investing in ESG funds can actually lead to better performance and be relatively inexpensive.

If you are interested in learning more about aligning your investing with your values, let’s schedule some time. ESG funds may be a perfect way to you to put your money where you mouth is.