Investing With a Purpose Through ESG Investing

Now more than ever, investors are becoming more selective with the companies they include in their portfolios. There has been a push from investors looking to ensure that a company’s values align with their own, which is commonly referred to as environment, social, and governance (ESG) investing. Whether that is selecting companies that have a strong belief in environmental matters, data security, or even health and wellness, investors are looking beyond surface statistics for their portfolios and focusing more on ESG investing.

Before we dig into why ESG investing has become so popular, let’s take a step back and review its definition. In ESG investing, portfolio managers evaluate and analyze a company’s environmental, social and governance metrics alongside its financial performance. Here is a breakdown of some of the metrics often reviewed in each category:

Environmental– How does said company positively or negatively impact our environment? Example metrics would be climate change, greenhouse gas emissions, resource depletion, waste and pollution, energy efficiency, alternative energy, etc.

Social– How does the company treat and value its employees and surroundings? Example metrics would be labor, health and safety standards, fair treatment of minorities, diversity and employee engagement, supply chain and sourcing, community involvement and data protection

Governance– How accountable and transparent is the company and its operations? Example metrics would be executive compensation structure, board diversity, transparency, political contributions, corruption and business ethics.

So, why exactly has ESG investing become such a frequent practice recently? There are a few factors that all work together to stimulate an environment for ESG investing to thrive. Here are some key elements:

  • A new generation of investors is becoming more informed and involved, and along with this, new demands and expectations for companies to adhere to including more shareholder engagement, activism, and higher standards.
  • The unprecedented COVID-19 pandemic dramatically impacted how people prioritize what matters and how their wealth is spent.
  • A realization that oftentimes ESG information can be used to generate higher risk-adjusted returns, or alpha.

Interested in utilizing ESG investing in your own portfolio? Here are a couple of common strategies that investors utilize to effectively implement ESG investing:

  • Avoiding companies whose agendas conflict with investor values. (Think: tobacco, weapons, manufacturing, human rights violations, etc.)
  • Managing the number of companies that may be potentially risky and seeking out those which may generate better opportunity. For example, companies that deal with issues such as water scarcity, energy use, carbon regulations, or cybersecurity may fluctuate in numbers but may provide opportunities for potentially higher returns.
  • Targeting companies with “evergreen” missions and measurable social returns, such as cleantech, community building, human capital, access to healthcare, etc.

At BerganKDV, we recognize the significant demand for ESG investing and have developed a portfolio approach for clients seeking to effectively integrate their core values into a diversified portfolio. If you’d like to learn more about ESG investing and our team’s approach to managing, I encourage you to attend an upcoming webinar here. During the webinar, our Wealth Management team will dive into greater detail on ESG investing and how to strategically implement it.


Diversification and asset allocation do not ensure a profit or guarantee against loss.

The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal, or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning are offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.

CATEGORIES: Wealth Management
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