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How to start ESG investing in 2023
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This page provides the overview you need to embark on your journey in ESG investing. Learn about the components that constitute ESG in order to best place your investment.
What is ESG investing?
ESG investing is using environmental, social, and governance criterions as an investment focus with the aim of being ethically conscious. It is an increasingly important investment strategy where the investor only puts money into companies that perform well on ESG issues.
ESG investing has grown increasingly more popular in recent years, particularly with younger investors who put money into what they value. In fact, demand for ESG investing particularly arose during the pandemic in 2020. Research shows that investors held $17 trillion in assets that employed ESG criteria at the beginning of 2020 – an increase from $12 trillion in 2018.
Compare the best place to invest using ESG criteria
To start you off on your ESG investing journey, we have selected the best brokers in the market. All brokers listed in the table below are beginner-friendly and offer easy-to-use interfaces to access ESG-focused investment options.
How to identify ESG investments
There is no uniform approach to identify ESG-compliant companies. The criteria is subjective in practice and although there are no scores for companies with an ESG focus, there are companies that specialise in ESG ratings (i.e. MSCI ESG Research). In addition to brokers that have screeners for ESG ETFs and funds, there are a few ways for you to identify ESG investments yourself as outlined below:
- Analysis. Do your due diligence if you have a specific company in mind. You can conduct fundamental analysis by delving into company reports. Most ESG-focused companies publish information about their ESG initiatives.
- Ratings. There are several third party websites that offer guidance and ratings for how well (if at all) a company is doing with their ESG initiatives. The most notable include: MSCI, FactSet, and StoneX.
How to invest using ESG criteria
It is a simple and straightforward process to invest in companies that align with your ESG expectations. You can follow our step-by-step below to start ESG investing today:
- Choose your investments. Either use a third party screener ESG companies, or do your own due diligence to select companies that match your values. Third party screeners are often helpful for identifying individual stocks, ETFs, and funds.
- Choose a broker. Using an online broker is advisable for accessing a broad range of ESG investments across sectors. Online brokers also offer other relevant features to aid your investments.
- Create an account. When registering with your choice of online broker, you must submit verification documents (i.e. your passport or valid drivers licence). As per your broker policy, it then takes a stipulated time to verify your documents and ready your account for trading.
- Deposit funds. Different brokers offer different methods to deposit funds into your account. You can normally use methods like your debit/ credit cards and direct transfers via your bank account and some brokers also offer alternative methods like Apple Pay and PayPal. You must review the deposit options for your choice of broker to make sure they work for you.
- Make your first investment. Every company has its own unique ticker that you must search for when logged into your online brokerage account. Once you have found the investment option you are after, you must decide how much you want to invest and place your order accordingly.
Best ways to invest in ESG
There are a multitude of ways to invest in ESG-compliant companies. You can invest in individual stocks, ETFs, funds, or robo-advisors. We have provided an overview for each of these options below:
- Stocks. ESG stocks offer you the vantage of investing directly into a company that corresponds with your ESG values. You can buy stocks in companies across sectors. Picking your own stocks will offer you the most flexibility and potential for return in the long-term.
- ETFs. ETFs are baskets of shares or bonds that are traded on exchanges, like individual stocks. ESG ETFs can be tax-efficient and have portfolios that match your overall ESG requirements. Furthermore, ETFs are low-risk investments as they hold a diverse range of stocks – ideal for investors who do not have the time to cherry pick stocks.
- Funds. Funds are professionally managed investment portfolios that contain many different securities. Investors can choose a fund that specifically has an ESG-focus for its portfolio of holdings. Funds offer largely similar advantages to ETFs – they are fairly priced, convenient, and lessen risk to the passive investor.
- Robo-advisors. Robo-advisors are automated financial advisers that you can access online. They can expertly guide you about the various ESG investment options so you can best place your investment. Robo-advisors are also a much lower-cost alternative to human advisors.
What to consider before ESG investing
There are a few considerations before you start investing. You must consider your values, the company you are interested in, and the time frame for your investment. We have outlined how to follow through with each consideration below:
Your values
While the ESG criteria is pretty straightforward, what constitutes environmental, social, and governance can be subjective to different investors. Before you invest, you must do your due diligence to ensure that how you interpret each value criterion corresponds with the interpretations of the company you wish to invest in.
The company.
Investing in ESG is still an investment – in addition to ESG values, you must also consider the financial performance and prospects of a company. These factors determine the potential return of your investment in the long run. It is not enough that a company matches your ESG values, it must also be financially sound – you should consider conducting fundamental research and analysis to establish this before you invest.
Time frame.
Before you invest, it is important to gauge your timeframe. Whether you are looking to invest in the short-term or long-term shall determine how active or passive your investment strategy is. It shall also determine the choices you make and the companies you invest in.
A quick recap of what we’ve learned
New-age investors prioritise sustainability and use an ESG values-based approach when constructing their portfolio. Employing an ESG approach can help you avoid companies that pose a greater financial risk because they are not socially responsible. Many companies, funds, brokers, and advisers now offer products and services that prioritise ESG and can kickstart your ESG investing journey today.
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