Why should you consider ESG investing?
Understanding ESG and sustainable investing*
Many people want to make a difference in the world while also achieving strong investment returns. If you’re among them, you may want to put your money to work through responsible investing, also known as sustainable investing*, for its focus on ethical environmental, social and governance (ESG) practices.
What is ESG investing?
When you invest in assets that focus on themes related to the welfare of people and the environment, you are engaged in ESG investing. You may consider factors like how companies respond to climate change, treat their workers and manage their supply chains.
ESG investing first gained traction in the mid-2000s when the UN Global Compact encouraged investors to think about sustainability factors and the global financial crisis highlighted the importance of business ethics. However, ESG investing really took off in the last decade as climate change and governmental regulatory pressure caused investors to look more closely at environmental, social and governance data.
How does ESG investing compare to traditional investing?
Traditional investing focuses primarily on a company’s market share, debt, profitability, dividend history and other financial considerations. As an ESG investor, you should continue to pay attention to these concerns while considering what impact a company’s products, services and business practices have on sustainability.
Sustainable investing* allows you to help society while investing in practices that may provide long-term financial benefits. For example, a business that focuses on reducing the raw materials required for production is both cutting costs and reducing the strain it places on natural resources. An ESG investor considers both the environmental and financial benefits of these practices, rather than just the cost savings.
Including companies with ESG practices in your portfolio
Whether working with a financial advisor or on your own, look for companies that provide measurable and verifiable sustainability benefits along with strong financial returns. You might favor businesses that encourage stakeholder engagement or exclude companies in certain industries, such as gambling or tobacco manufacturing, because you believe their core business can have negative social or health impacts.
In addition, you can look at whether a company’s underlying strategy and product line provide societal benefits. You might invest in a company that manufactures products using only renewable resources, focuses on sustainable agriculture or makes equipment for the production of clean energy.
Understanding ESG metrics and reporting
Companies today release much more ESG data than in years past, thanks to investor interest, governmental regulations, supply chain requirements and customer expectations. Common ESG metrics include greenhouse gas emissions, energy consumption, employee engagement, health and safety statistics and executive compensation.
You can build an ESG portfolio by investing in mutual funds or exchange-traded funds (ETFs) that use public data to identify companies that meet specific sustainability criteria. Annual reports also provide information about individual companies’ ESG performance. An experienced financial advisor can help you make choices that are right for your strategy.
ESG sector focus and investment strategies
ESG investors often focus on industries that will benefit from environmental and social trends. For example, you could look at companies working in green energy, carbon reduction and climate resilience that are poised to grow. The same is true for businesses focused on regenerative agriculture, as society looks for ways to make farms more productive.
Sustainable investing* also can help you mitigate risk around broad environmental and social trends. For example, you could favor investments in companies that evaluate the physical danger to factories posed by climate change and reduce their exposure to supply-chain disruption by minimizing how much raw material they require.
ESG-related equities and fixed-income assets can help you build your wealth and make a difference in the world by focusing your investments on sustainable industries and practices. To learn more, find a UBS Financial Advisor or branch office near you.
At a glance
At a glance
- By investing in sustainably managed businesses, you can make a difference while potentially building wealth.
- Companies often mitigate risk and take advantage of business opportunities when they anticipate the impact of social and environmental trends.
- Data can help inform your decisions about suitable ESG investments.
See how a UBS Advisor can help you create an ESG-focused portfolio.
Make sustainability a core feature of your investments
UBS can help you design a portfolio that aligns with your values
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Disclosure
*This terminology refers to definitions in the UBS Sustainable Investing Framework and does not refer or relate to any product specific regulatory labelling regime or naming conventions.
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