KEY POINTS
  • ESG investing — or strategies that take a company’s environmental, social and governance factors into consideration — grew to more than $30 trillion in 2018, and some estimates say it could reach $50 trillion over the next two decades.
  • These strategies, which include impact investing, are not new, but momentum is growing as shareholders demand action, and as the consequences grow for companies that fail to adapt.
  • One of the most popular ways to evaluate these metrics is through ESG integration.This is a strategy whereby a stock is evaluated through an ESG lens alongside traditional metrics like capital allocation and cash flow.
  • There are a number of ways to take an ESG-style investing approach, including ETFs that track indices, as well as specialty funds that do not include stocks related to polarizing areas of the market such as tobacco and fossil fuels.
  • Once thought to come at the expense of returns, ESG strategies have proven that they can be market-beating.

ESG investing — or strategies that take a company’s environmental, social and governance factors into consideration — grew to more than $30 trillion in 2018, according to Global Sustainable Investment Alliance, and that number is set to keep rising as consumer tastes shift and investors demand more transparency. Once a niche approach thought to come at the expense of returns, these strategies have proven that they can be market-beating. And as investor momentum builds, some argue that companies can no longer afford to discount their ESG ratings.

Definitions of “ESG” are wide-ranging. The inherently subjective nature can make these factors hard to quantify — my good could be your bad.

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