By Steve Doster
ESG investments create change by investing in companies that are leaders for environmental solutions, social issues and corporate governance. ESG investments might be right for people that create change through activism, volunteer, donate to charities, and mindfully reduce their carbon footprint. ESG investments can also result in a safer portfolio for you.
ESG investment are best explained using examples to show the power of your dollars working to create lasting change in our world. Here are just three examples below.
Parnassus Investments is a leader in ESG investments. Their mutual funds completely avoid investing in any fossil fuel companies. Fossil fuels contribute to global warming. Investors can help reduce carbon emissions by withholding their retirement savings from fossil fuel companies. If all investors stopped investing in fossil fuels, these companies would no longer have the cash to build new plants and production facilities.
Parnassus uses the combined power of investors that buy their mutual funds to create change at specific companies. The company that owns Oreo cookies and Ritz crackers was pressured by Parnassus and other shareholder activists to commit to using sustainably sourced paper packaging this year and 100% of its packaging will be recyclable by 2025. How cool is that? You can invest in these mutual funds, earn investment returns and change the world – all with your investment dollars!
Calvert is another leader in ESG investments. One of Calvert’s many initiatives is to increase the number of women and people of color on the boards and in senior leadership positions at publicly traded companies. In the past year, they have been engaged with 37 large U.S. companies to act on this initiative. Calvert does this by filing shareholder proposals seeking to include diversity at the top of the management structure. Using the voting power of Calvert mutual funds, they can vote in favor of productive shareholder proposals and vote against destructive proposals. Because investors have billions of dollars invested in Calvert mutual funds, Calvert has the power to make a meaningful impact on the success or failure of a shareholder proposal. Once a shareholder proposal is approved, management must move forward with implementing the change.
For both Parnassus and Calvert, your money allows them to get to work and create change. First, an investor buys shares of their mutual funds. Parnassus and Calvert then invest that money in companies that are already doing great things for the world so that these sustainable practices can expand. And Parnassus and Calvert also go to other companies, letting management know they have plenty of money to invest if the company will make changes to improve the environment, diversity, sustainability, worker protections, and so much more.
There is another benefit of ESG investments. This philosophy reduces exposure to certain risks. ESG investing can actually produce the same or better returns than traditional non-ESG investments but with less risk to your portfolio.
Are ESG investments right for you? They probably are if you create change through activism, volunteer for nonprofits, donate to charities, own an electric vehicle, use solar power or ride a bike for commuting. All these actions create change on an individual basis. You can increase your impact for change by investing in ESG mutual funds that create change on your behalf.
— Steve Doster, CFP® is the financial planning manager at Rowling & Associates – a fee-only wealth management and CPA firm helping individuals find their financial freedom. Rowling & Associates works to a fiduciary standard of care helping people with their taxes, investments, and financial planning. Read more articles at www.rowling.com/blog.