Interested in ESG investing? Understand the benefits, risks
ESG investing is an investment strategy in which an investor considers environmental, social and governance factors about a company or fund when making financial decisions.
“ESG” is an acronym that stands for environmental, social and governance factors. Environmental factors generally concern a company’s impact on the environment, such as its energy or water use, pollution output, climate change policies, waste management, greenhouse gas emissions goals, and carbon footprints.
Social factors often relate to a company’s culture and policies impacting employees, customers, suppliers and others. Such factors may include company policies regarding diversity and inclusion, social justice issues, employee sexual harassment, fair labor practices, faith-based issues, and health and safety initiatives.
Governance factors typically consider how a company is run and the relationships its officers and directors have with employees, customers, shareholders and local communities. These factors may include executive compensation, board composition, conflict of interest policies, transparency, ethics, compliance, shareholder rights and lobbying.
Investors interested in ESG investing may consider some or all of these factors when deciding how to invest their money.
As with any investment strategy, the State Corporation Commission Division of Securities and Retail Franchising urges investors to do their homework before making any investment. “All investments are not created equal,” said Division Director Ron Thomas. “While ESG investing is popular, it may not be right for everyone. When investing, consider all of your goals and the potential benefits and risks of a particular investment. Don’t invest money you cannot afford to lose.”
Whether pursuing an ESG investing strategy or engaging in any investment activity, Thomas urges Virginians to consider the following:
- Thoroughly evaluate each investment opportunity and make sure you understand the investment and any fees and expenses associated with it. Seek independent, professional advice, if needed.
- Check a company’s track record, management and regulatory history using publicly available resources and filings.
- Review an investment’s disclosure documents.
- Consider whether an investment’s stated approach matches your investment goals, objectives, risk tolerance and preferences.
- Do not allow anyone to pressure you into making an investment.
- Check with your state securities regulator to find out if an investment and the person offering it are licensed or registered. In Virginia, consumers can contact the SCC Division of Securities and Retail Franchising in Richmond at 804-371-9051 or toll-free at 1-800-552-7945.
For more information, visit the Division’s website at scc.virginia.gov/pages/Consumer-Investments or the North American Securities Administrators Association website at www.nasaa.org/57335/informed-investor-advisory-esg-investing.