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Financial Fridays: What is ESG?
2 / 16 / 2018
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When you want to invest responsibly - in good companies that are making the world a better place - where do you even start? It’s hard to just say a company is ‘good’, so corporate practices are usually rated in three categories: environmental, social, and (corporate) governance: “ESG.”

We often find that companies who have made a real effort in to be ethical in one way fall short in others. Understanding how companies can rate in different categories is a great way to decide whether a company aligns with your values – and then take action to support those companies and their vision.

Environmental

Positive environmental practices are relatively straightforward. Companies who have committed to lowering their carbon emissions, sustainably sourcing their ingredients and raw materials, or carrying out energy-saving practices in their stores and offices are all examples of positive environmental policy, but there’s plenty more ways that companies can commit to preserving the environment

Social

Social practices cover how a company interacts with its web of ‘stakeholders’. A stakeholder is anyone who has an interest in the company, including employees, customers, shareholders, local government, and others. Does the company hire locally and provide good benefits to its employees? Does it support diversity actions and build support structures for its minority, differently abled and LGBTQ employees? Does it participate in the local community through sponsorships and encouraging its employees to get involved?

Corporate Governance

Corporate governance practices are a little more nebulous. Good corporate governance encompasses the kinds of rules, values and practices that encourage ethical behavior within a company. Examples of good governance include transparent leadership and board structures, high levels of shareholder engagement, and appropriate wages for executives and employees. An example of bad corporate governance is Wells Fargo: the employees involved in recent scandals said they were driven by bad incentives, permissive company culture, and management that encouraged unethical behavior, all of which drips down from top-level corporate governance practices.

When you want to invest in a meaningful and socially responsible way, you can often find ETFs and mutual funds built around one or all of these criteria. But they can be pricey and rigid, meaning you can’t prioritize any values that are more meaningful to you. What if you want to support women leaders, but only in companies that are dedicated to the environment?

OpenInvest allows for that kind of optimization, at both the criteria and individual company level. Screen in or out companies based on a variety of environmental, social or corporate governance factors, and then include or exclude individual companies that align to your values.

Want to learn more about how it works? Reach out to us.

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