ESG Investing


By Gary Meeks, RICP®

There is a term frequently being used in the financial industry these days: sustainable investing or ESG investing. Fidelity Investments defines ESG this way: Sustainable investing incorporates environmental, social and governance (ESG) factors into the investment decision-making process, using them to evaluate a company’s sustainability and long-term value.

Some key components of ESG investing include the following:

  • Environmental: Climate change, resource scarcity, clean energy
  • Social: Diversity, human rights, cybersecurity
  • Governance: Business ethics, transparency, corruption

As a financial advisor, I have seen many mutual fund companies and investment managers incorporate ESG evaluation as a tool in determining what companies to include in their mutual fund and ETF (Exchange Traded Fund) portfolios. The idea is that these companies should benefit from a combination of policy support, market acceptance, technical advances and cost reductions.

Morningstar, Inc. is an investment research and management firm that rates mutual funds, exchange traded funds and other financial assets. As part of their rating of these products, they include an ESG rating or sustainability rating.

Ben Johnson with Morningstar stated, “The Sustainability Rating is a summary expression of how well a fund’s holdings are managing ESG risk. I think all investors will agree that these risks are real and financially material. They may or may not get paid for managing these risks, but they would do well to be aware of them.”

Fidelity Investments now conduct ESG ratings on companies they consider for inclusion in their mutual fund portfolios.  A myth, according to Fidelity Investments, is that some investors believe that mutual funds or ETFs with a focus on ESG will not perform as well as other funds without ESG considerations. Their research has shown this to be untrue.

I write this article not to debate climate change or causes, social policies, or corporate governance, but to provide information about an investing trend that is taking place in the financial industry.

The fact is, “the world is changing,” and likely companies that are innovative, adapt and focus on ESG as a priority in their operations may be more likely to succeed in the future as well as provide solid investor and shareholder returns.

Gary D. Meeks, RICP®, is a registered representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker dealer and Registered Investment Adviser. Cetera is under separate ownership from any other named entity. 90 W 100 N STE 6, Price, UT 84501 (435) 637-8160.

Mutual Funds and Exchange-Traded Funds are sold only by prospectus. Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained directly from the company or from your financial professional. The prospectus should be read carefully before investing or sending money.

Sources:  “Sustainable investing” flyer. “ESG: A New Era of Investing” video,  3 Things About ESG Investing We Can All Agree On Ben Johnson, CFA

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