“Invest in what you know.” This classic piece of advice from Warren Buffett is etched somewhere
in the heart of every investor because it touches on a fundamental truth of wealth management
strategy. Investing is a reflection of values. If we take a deeper look into this, we find that what
you know is what is important to you. This means that investing in what matters to you can have
as much of an impact on the world we live in as it does on future returns. While having a long
term growth strategy is crucial when it comes to wealth management, investors who consider
ESG factors have found opportunities in creating a better world while simultaneously positioning
themselves to capitalize down the road. In fact, 72% of adults are sold on the idea that social
responsibility is a necessity for a businesses overall strategy. This means that the investors of
today are concerned about a company’s impact on all of its stakeholders, not just the bottom line.
As a result, they know their investments matter, and are investing like they mean it.
There is no one size fits all approach to ESG investing since it touches on three broad
components of the business world: environmental, social, and governance. However, as we
explore the current state of world affairs, we find that ESG investments can be more stable than
traditional investments. In many cases, investments made with ESG considerations have
generally outperformed their traditional counterparts across a wide array of asset classes. ESG
provides opportunities because companies that score high on the ESG scale are typically
mitigating risks, reducing taxes and ensuring long-term sustainability.
We have seen the emphasis on ESG factors intensify in recent years, largely due to Covid. Since
the start of the pandemic, businesses have been forced to contend with their environmental,
social, and governance protocols more than ever. This shift in focus has had an impact on how
people value their investments. We are seeing that when companies have interacted with their
stakeholders in a way that promotes safety, it concurrently provides a more sustainable approach
to functioning in the long run. In other words, adaptability is sustainability, and sustainability is
security. When companies prove to us that they are successful in navigating these changes, they
can instill greater confidence in their investors.
Covid responses are just one example of how ESG impacts the current world of investing. The
opportunities for ESG investments continue to grow as businesses attempt to address some of
the larger issues that we all face. When we take a look at the issue of climate change we are
seeing BRIC countries, such as India and China taking massive strides towards reducing their
carbon emissions. While these changes are driven by necessity, it presents new opportunities to
fund the technology in emerging markets that makes a transition towards sustainable energy
more readily available to the world at large. Already, China has recognized the importance of
ESG standards and is currently rolling out new regulations towards becoming carbon-neutral by
- Additionally, China continues to require more of companies by implementing new
regulations on labor related issues, which have come under scrutiny in the past. Their hope is to
remain an attractive place for companies to invest their resources.
While ESG is attempting to address concerns of some very large issues, it also provides
opportunities on a much smaller scale. Part of social compliance is recognizing that social
responsibility is now an expectation of employees. A recent study found that 80% of people in
the United States between the ages of 25-34 years old prefer to work for socially responsible
companies. What this looks like in practice is that ESG focused companies have shown higher
degrees of satisfaction because of things like paid sick leave, mental health support and
charitable donations. Making an investment in people has proven to be an asset, and a long-term
predictor of stability. In the US, we have seen this play out in “the great resignation” as many
companies have been left understaffed and hard-pressed to find talent. Companies who have
overlooked the human element of their business were severely handicapped as talent shortages
added complications to a market that has been overrun with delays due to Covid, material
shortages, and bottle-necked supply chains.
While the avenues for ESG continue to grow, it’s important to assess what matters to you, and
invest accordingly. Talk with your advisor about how making the right ESG investments can bring
stability to your portfolio.