Environmental, Social, and governance (ESG) investing has grown into an extremely popular investing style over the past few years. And rightfully so, since so many individual investors care about where they are putting their money and how the companies they invest in behave from an environmental, social, and governance standpoint.
Many also believe that ESG investing is the best way to change the thinking and actions of those in charge of large corporations since they may be excluded from funds and large investments if they are not meeting the ESG standards. This, although yes yet to truly been seen, take place since ESG investing is still relatively new.
Many investors would also say that they have been investing with an ESG mindset for decades; they just didn’t call it by its current name. For example, my own wife refuses to buy stock in alcohol, tobacco, firearm, casino, or marijuana companies due to her beliefs and doesn’t want to support those types of businesses. But, on the other hand, I have no problem investing in those types of companies as long as they are well-run businesses that are abiding by the law. So, everyone has their own opinions about ESG businesses and funds.
However, if you want to only own ESG funds, you need to understand that these funds may be costing you money in the long run. Before we get into the way they may be costing you money, I want everyone to understand; there is nothing wrong with sacrificing potential gains to support the types of businesses and leaders you believe in. It really is no different from, say, someone investing in bonds instead of stocks because they want to take on less risk and realize lower returns. The important thing is that you fully understand the risk and rewards of investing in ESG funds. Continue reading "ESG Investing Is Costing You Money"