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ESG Investment Guide

The sustainable-investing movement is picking up momentum. Here’s how to participate.

Should your portfolio align with your notion of corporate responsibility? If you think it should, join a small but rapidly expanding population of ESG investors, those sensitive to the environmental, social and governance qualities of the companies that use their capital. This three-part guide delivers:

— a directory of the best ESG stock funds,

— an explanation of the competing scorecards for corporate benevolence and

— a recipe for combining responsible investing with a tax break.

Before diving in, think about what you are trying to accomplish. This is how Michael Jantzi, founder of the ESG rating firm Sustainalytics, puts it: “What’s the motivation? Are you looking to improve investments or improve the world?”

Some socially conscious investors aspire to do both. Perhaps it is possible to create an outperforming portfolio by avoiding the worst polluters, harshest employers and most shareholder-unfriendly managements. But it’s unrealistic to count on that outcome.

Until recently, sustainable funds have had the wind at their backs. It has been a time when, for reasons that have nothing to do with responsible investing, environmentally benign software companies have done better on Wall Street than stodgy oil companies.

Consider the iShares MSCI KLD 400 Social exchange-traded fund, one of the older responsible-investing portfolios. Its largest positions are in Microsoft, Alphabet and Tesla. In the past decade KLD has delivered an annual return of 14.4%, Morningstar reports, edging out the Vanguard Total Stock Market ETF’s 14.2%. Lately, though, the oil producers have done well while hot digital companies have cooled off.


Even without getting a boost in returns, or with no expectation that oil companies can be goaded into discovering renewable energy, the adherent of ESG investing might want to take a symbolic stance. Says Jon Hale, director of sustainability research for the Americas at Sustainalytics: “There’s an expressive benefit, like with the purchase of a hybrid or electric vehicle. Sustainability concerns are one of the things that express who I am.”

Since 2012 the assets of what Morningstar classifies as sustainable funds (equity and fixed income combined) have exploded from $5 billion to $357 billion. Still, that’s only 1.2% of the asset total for U.S.-domiciled funds.

Daniel Worthen, senior director at Simon-Kucher & Partners, marketing consultants to the financial services industry, says that demographics favor the ESG movement. “Socially conscious investing is higher on the agenda of the generation that doesn’t yet control the preponderance of investable assets,” he says. Expect more from this sector as the baby boomers pass their wealth on.

ESG Funds: Best Buys And Best Performers

To zero in on the best socially responsible funds, use these sortable fund tables.

The Complex Formulas Of Responsible Investing

Distinguishing good from evil on Wall Street is a challenge. Be grateful there are analysts doing most of the homework for you.

Do Well, Do Good: Ethical Investing With A Tax Break

At some online brokers you can screen for firms with high environmental-social-governance ratings and then place a basket trade.

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    ESG Investment Guide – Finance Essence

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