What is ESG investing?

Environmental, social and governance (ESG) investing allows you to choose investments that align with your priorities and avoid those that don’t. Investments could include all three components (environmental, social, and governance) or it’s also possible only one or two ESG elements is involved. It can be helpful to understand more about what each letter of EGG stands for to better understand what’s involved if you’re considering this type of investing.

• “E” in ESG
  The “E” in ESG is for environmental. Some ESG investments focused on the environment. This can include screening for companies that perform well on criteria such as low carbon emissions, clean technology, sustainable agricultural practices, and more. An example would be investing in companies that have a net zero carbon footprint.
  
  Interest in environmentally sustainable investing has grown, due to the realities of climate change and the desire to shift away from fossil fuels. More investors are seeking ways to support low-carbon economic growth as well as environmental sustainability. This may include broader considerations such as protecting water resources and biodiversity.

• “S” in ESG
  The “S” in ESG is for social. This means investing with a social focus. It could include investors looking at the working conditions, diversity and equity in hiring as well as fair wages of the companies they invest in. It can also include considering how a company engages with the community and other companies, such as Indigenous inclusion and reconciliation, ethical supply chain management and advocacy work for social good.
  
  Socially conscious investors tend to be concerned with the human impact of companies and their workers. Investors screening for socially conscious investments may choose criteria such as avoiding companies operating in conflict zones or prioritizing those that pay a living wage.

• “G” in ESG
  The “G” in ESG is for governance. This type of investing looks at corporate governance practices. It gives potential investors insight into the internal oversight of companies. Governance screening criteria could include board diversity, communications and transparency practices, executive compensation, or the existence of whistleblower protections.
  
  Investors who are interested in corporate governance practices want to know about the internal oversight of the companies they invest in. One example of ESG investing focused on governance would be choosing companies based on the percentage of people on their boards who are from historically under-represented groups.

Interest in ESG investing has been around for a long time. Socially responsible investing and impact investing date back to at least the 18^th century. History includes many stories of investors making choices based on concerns with war and conflict, ethical trading, and specific industries such as alcohol and tobacco. More recently, concerns over issues such as the impacts of climate change and geopolitical crises have led many current investors to put an additional focus on ESG investing opportunities.

Check out the OSC’s approach to sustainable finance.

What are ways to find ESG investments?

There are a few ways to find ESG investments. You may want to:

1. Work with an advisor
   Your financial advisor may have expertise in ESG investing, or there may be another advisor at your bank or investment firm who can offer insight. Having the conversation with your advisor may be an opportunity to review your portfolio and check in on your investment goals.
2. Take a DIY approach
   Many investment research firms publish ESG ratings for individual companies as well as investment funds. The ratings may reflect slightly different criteria used by each firm, which is why it’s good to compare rating in multiple places if you can. You can research the performance of individual companies or different ESG-oriented ETFs or mutual funds.
3. Use a robo-advisor
   Many online investment platforms now identify ESG or socially responsible investments. These robo-advisors may offer exchange-traded funds (ETFs) and other investments identified as ESG-focused, as well as advice in meeting your overall investment goals.

As with any investing, when choosing ESG investments, be sure to consider the fees involved, and the risk level you are comfortable with. And remember, some ESG investments are not what they seem — they could be ESG greenwashing.