ESG investing considers environmental, social, and governance criteria when evaluating companies for investment. It appeals to investors who want to align investments with their values, but some question if it requires sacrificing returns. Key pros are mitigating risks related to irresponsible corporate behavior and accessing growing ESG investment products. Cons are ambiguity in ESG standards and potential limitations on investment universe.
Appeals to investors with social values
ESG investing aims to positively influence corporate behavior on environmental and social issues. It matches investments to ethical principles.
Avoids companies with risky practices
Following ESG standards helps avoid companies more likely to experience scandals, lawsuits, and damage to finances and reputation.
Wide range of ESG investment options
Many mutual funds, ETFs, and robo-advisors now incorporate ESG factors into investment selection as interest grows.
Subjective ESG criteria
Lack of definitive standards on ESG factors leads to ambiguity. Companies may be evaluated inconsistently across raters.
Potentially fewer investment choices
Screening out companies with low ESG scores could eliminate some potentially profitable investments and limit portfolio diversification.
ESG investing balances social responsibility aspirations with financial objectives. Interest continues growing rapidly, but investors should understand the standards involved and how ESG criteria shape investment selection.