ESG stands for environmental, social, and governance and is a type of socially responsible investing that is rising in popularity. This investing methodology is a way to try and build a more ethical portfolio focused on sustainability by using non-financial factors to measure an investment or company. ESG portfolios choose stocks and bonds that meet particular criteria to grade investments in an attempt to clarify exactly what sustainability should look like.
Environmental factors look at the conservation of the natural world, social factors examine how a company treats people both inside and outside the company, and governance factors consider how a company is run.
Growing in popularity
According to the US SIF Foundation’s 2020 trends report, U.S. assets under management using ESG strategies grew to $17.1 trillion at the beginning of 2020. That’s a 42% increase from $12 trillion at the beginning of 2018.
Reducing risk and outperforming traditional funds
While a growing trend that is relatively new, the early data for ESG investing seems positive showing similar portfolio performance to traditional funds, and occasionally even outperforming according to some studies.
A 2019 white paper produced by the Morgan Stanley Institute for Sustainable Investing compared the performance of sustainable funds with traditional funds and found that from 2004 to 2018, the total returns of sustainable mutual and exchange-traded funds were similar to those of traditional funds.
And in 2020, Morgan Stanley's Sustainable Reality Report revealed (again) that sustainable fund portfolios outperformed traditional funds AND reduced investment risk despite the global pandemic.
In addition, the JUST U.S. Large Cap Diversified Index (JULCD), which includes the top 50% of companies in the Russell 1000 (a large-cap stock index) based on ESG rankings has returned 15.94% on an annualized basis compared with the Russell 1000’s 14.76% return.
Infinite Giving launches ESG portfolios
We are proud to announce the launch of 5 new ESG portfolios to provide access to socially responsible investing for Infinite Giving clients. Nonprofit organizations now have the option to choose ESG investing if it aligns best with their mission and investing goals. Nonprofit organizations often have a unique and passionate desire to create a ripple effect of good in the world, and now they have the option to choose ESG investing (still leveraging index funds and ETFs) if it aligns best with their mission and investing goals.
Welcome to sustainable investing, where nonprofits can build sustainability for themselves and the world. Ask your Infinite Giving investment advisor to learn more about the five ESG portfolios we currently offer.