ESG and impact investing for women: make a difference AND a return
By Kelly Pedersen, CFP®
For more and more of us, it’s no longer just about the money.
There has been a sea change growing in how people invest in recent years, and that shift has largely been driven by women. Fading is the mentality that investing is simply about making as much money as possible. Today, an increasing number of people (again, largely women) view and make decisions regarding their investments through a filter of the potential environmental and social impact they could have.
Often referred to as impact investing or ESG, which stands for environmental, social and governance, the focus is on weighing a variety of non-financial factors when considering an investment. Those factors can include carbon emissions, air and water pollution, gender and racial diversity in the workforce, fair labor practices, political contributions, executive pay and more.
And this is no small, “flash-in-the-pan” trend.
According to Morningstar, ESG funds accounted for more than $51 billion of new money from investors in 2020 — more than double from 2019.1
And the US SIF Foundation’s Report on US Sustainable and Impact Investing Trends states that $17.1 trillion was in “responsibly invested assets” in the United States at the start of 2020, up 42 percent from 2018.2
What about returns?
There is a lingering fallacy when it comes to ESG or impact investing that investors must sacrifice on returns to make a positive social or environmental impact. That is a myth that has largely been dispelled. With a well-thought out and diversified portfolio, investors can achieve both a meaningful impact and an attractive return. In fact, Moody’s reports that ESG-themed investments have become one of the best performing investment categories in recent years.3 That said, every investment portfolio is unique, and returns can fluctuate based on a myriad of factors. But on the whole, ESG or impact investments have the potential to deliver meaningful returns that are comparable with non-ESG investments.
Why the strong interest from women?
Women have long looked at investing differently than men. As women have increasingly taken on leadership positions in the workforce and have become the breadwinners in their families, we have seen more dollars go to ESG investments. For women, investing is just as much about doing the right thing and shining a light on inequities and sustainability as it is about making a return. In other words, there is less “ego” in a woman’s portfolio. They are typically not obsessed with going to the golf course with their buddies and bragging about how much their investments have earned this year. They take a bigger picture view of what investing can and should do.
To illustrate that point, a recent RBC Wealth Management study found that female clients were almost twice as likely as their male counterparts to say it is important that the companies they invest in integrate ESG factors into their policies and decisions.4
And according to another recent survey, only 19 percent of women reported that they would invest in a company that was not considered socially responsible, compared to 51 percent of men.5
How do I get started?
Fortunately, there are many options to get started with ESG or impact investing. In fact, the number of sustainable funds available to U.S. investors grew to almost 400 last year, up 30 percent from 2019, according to Morningstar.
The first step is to step back and ask yourself what areas of socially responsible investing you want to lean into. What do you care most about? Where do your passions lie? Is it environmental impact? Perhaps it’s social justice issues? The reality is ESG investing can be very multi-faceted, which presents many options but can also be daunting. If your answer is, “I don’t know” or “I’m not sure,” that’s a fair answer. The good news is through working with a qualified financial advisor, there are many funds to explore that showcase sustainability ratings (such as through Morningstar). Having access those to those ratings allows investors to “dip their toes in the water” of ESG and impact investing without becoming overwhelmed and bogged down in analyzing every stock or other investment choice.
In summary, women are driving this trend toward sustainable and socially responsible investing, and it is likely only going to grow, and for good reason. ESG investing is no longer a niche strategy. Rather, it is becoming commonplace as investors realize that they can make a real difference in helping to solve daunting global issues while also earning an attractive return. It’s truly a win-win combination.