ESG investing is about selectively buying shares in companies that have strong environmental, social and governance standards. Such companies are seen by some to be more sustainable in the long run. This is because those factors are becoming more important in order for the business to perform well, aside from just financials. So how can I integrate this into my own stock portfolio?
Some easy solutions
The easiest way to integrate ESG investing is directly buying a mutual fund that is focused on ESG criteria. This takes out a lot of the hassle and research from my end. It allows me to buy a collection of stocks that are managed actively by a fund.
I wouldn’t invest a high proportion of my overall portfolio such an ESG fund. However, even a small amount would tick the box here. I’d know exactly what exposure I had to ESG-positive companies.
Another way I can look at ESG investing is by reviewing my current collection of stocks. It might be the case that the companies I’m invested in are already performing well regarding ESG criteria. In this case, I might be surprised, and don’t need to make any changes to my holdings.
For example, I might have shares in GlaxoSmithKline and think that big pharma is the opposite of positive ESG. Yet by taking a closer look, I’d find out that GSK has a commitment to reach a net zero impact on climate and a net positive impact on nature by 2030.
More active ESG investing
It may also be the case that on further research, many of the stocks I own don’t seem to be particularly ESG-friendly. To counterbalance this, I can look to invest in stocks that are positive in this regard.
I can look at stocks within renewable energy, clean energy or healthcare. These are a few examples of sectors that in general should contain ESG investing favourites. The reason I would want to add these stocks to my portfolio is because there’s increased demand from investors for such shares. Logically, this should help to push the share prices higher of the respective companies.
Although I believe in a buy-and-hold strategy, it may be sensible to trim some of my holdings in stocks that are clearly not ESG-friendly. I don’t want to sell for a loss, but if I’ve held the stock for a while and am in profit, reducing my exposure could be a good thing. I think the interest in ESG investing is only going to get greater in the future. So if a stock I own is sticking out like a sore thumb, I might consider selling some of it.
Overall, ESG investing doesn’t have to be complicated or difficult to work into my stock portfolio.
