What You Should Know About ESG Investing

Marguerita Cheng |

Please note that this article was originally featured by our CEO, Marguerita Cheng, on CFP Board’s Let’s Make A Plan Blog.


Have you heard about ESG investing? ESG stands for environment, social and governance. It’s an investment strategy that considers what a company does and the effect of its actions on society.

ESG is a type of Socially Responsible Investing (SRI), which refers to an investment strategy based on social criteria that seeks to avoid investments in certain industries that engage in controversial business activities. Some of these industries include alcohol, tobacco, gambling, pornography, weapons, defense contractors and firearms.

Over time SRI has evolved as an investment strategy that strives to maximize financial return while also supporting values and causes important to individual investors. If an ESG investment strategy is appropriate for you, here's what you need to know to get started.

Identify your own ESG values.

Before you decide how to incorporate ESG investing into your portfolio, you must first identify your own beliefs. Values can differ from one person to the next, so think about what’s important to you.

Consider the three main factors that go into ESG investing:

  • Environmental: A business strategy for long-term growth that works in harmony with people and the planet.
  • Social: This is a company’s commitment and ability to providing safe and healthy working conditions, ethical employee treatment and fair employee wages.
  • Governance: The structure of rules, practices and processes that direct and manage a company. Think of it as what happens behind the scenes.

Once you have a list of a few ideals, you’re ready to begin comparing your values to a company’s values.

Find ESG investments that match your values.

There are many resources available to learn about companies that align with your values or companies that already do an excellent job of incorporating ESG.

So, where do you start?

  • You can find information about ESG investments on websites such as GreenInvestor and Morningstar.
  • Read about a company's mission, vision and core values on its website.
  • Research a mutual fund or exchange traded fund’s (ETF) portfolio companies to make sure they align with your moral compass. The US SIF website has a list of more than 200 socially responsible funds to help narrow your choices.
  • Use your brokerage's screening tools to locate ESG investments and find more information in an ESG fund’s prospectus, disclosure documents and websites.
  • Look into community development financial institutions (CDFIs) that provide services in low-income areas.

Get expert help.

As you can see, ESG investments can take many forms. But you can also choose the way you invest, either through the “do-it-yourself” route or get help by hiring a financial professional.

A CFP® professional can offer investment guidance, portfolio management and holistic financial advice that covers your big-picture financial goals. They can also help you develop an Investment Policy Statement, which can provide a framework for defining, analyzing, implementing and monitoring a portfolio that provides both positive financial returns and social impact.

Regardless of the route you take, if you decide to pursue ESG investing, you'll have a lot of options to choose from. But it is important to remember that building an ESG-balanced portfolio can take time. Your portfolio doesn’t have to be completely value-aligned overnight.

To decide if an ESG investment strategy is appropriate for you, don't hesitate to reach out to a CFP® professional.