On this episode of A Wiser Retirement Podcast, Casey Smith and Matthews Barnett, CFP®, ChFC®, CLU® talk about what ESG investing is, how ESG investing works, and whether it is a scam or if it is actually saving the world.
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What is ESG investing?
ESG stands for environmental, social, and governance. There is a lot of different criteria for each of them. Environmental explains how a business performs as a steward of the natural environment. It includes categories of waste, pollution, resource depletion, greenhouse gas emissions, deforestation, and climate change. Social looks at how a company treats their people. This has become an important side of corporate structure. This includes employee relations, diversity, working conditions, local communities, health and safety of company, and their response to dealing with conflict. Governance explains how a corporation policies itself and how it is governed. This includes tax strategies, executive structures, donations, political lobbying, corruption, bribery, and board diversity.
Does ESG outperform regular investing?
You may have read or seen somewhere that ESG investing outperforms regular investing. However, there is not enough data to back that claim. People tend to cherrypick the data, and make it say what they want it to say. In reality, ESG investing has not been around long enough to have significant data to compare its performance to regular investing.
Greenwashing refers to when a company conveys false information about their company or their products being environmentally sound. Greenwashing is known as an unsubstantiated claim, which happens all too often nowadays.
Is ESG investing a fad?
This is a tough question to quantify. ESG funds could be considered a fad. From a performance perspective, the major indexes are more diversified than ESG portfolios. If you want to be very passionate about ESG, you probably need to find an active fund manager, like a traditional mutual fund, that is doing more activist type things.
ESG investing can get political. When it comes to indexing, you have to remove politics from your portfolio.
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3:20 What is ESG investing?
19:00 Does ESG outperform regular investing?
25:50 Is ESG investing a fad?
Learn more about Brad Lyons.
Learn more about Matthews Barnett.