With the rising popularity of ESG (environmental, social, and governance) investing in recent years, some investors are still choosing more traditional non-ESG investment options. Non-ESG investments make up a significant portion of the overall investment market. Here we provide an overview of major non-ESG investment types.
Non-ESG stocks cover most of the stock market
The majority of publicly traded stocks do not strictly qualify as ESG investments. Most indexes like the S&P 500 or the Dow Jones Industrial Average are predominantly comprised of non-ESG companies. Investors who purchase index funds or pick individual stocks outside of specific ESG-focused strategies will end up with largely non-ESG portfolios.
High-yield bonds lack ESG screens
High-yield corporate bonds that offer juicy yields in exchange for higher risk are an enticing option for many investors. However, high-yield bond issuers rarely meet ESG standards or provide much transparency. Thus, most high-yield bond funds do not apply ESG screens.
Hedge funds promise absolute returns
Hedge funds aim to generate positive returns in any market environment using sophisticated strategies like short selling and leverage. They appeal to investors seeking absolute returns unconstrained by benchmarks. Hedge funds generally do not factor in ESG criteria when selecting investments.
Commodities offer diversification
Commodities like oil, metals or agricultural products provide portfolio diversification as their prices depend on supply and demand dynamics rather than broader financial markets. But trading commodities has major ESG concerns around carbon emissions, labor practices, biodiversity impacts and more.
Cryptocurrencies lack transparency
Cryptocurrencies like Bitcoin and Ethereum have surged in popularity among investors seeking big profits from an emerging asset class. However, the environmental impact of crypto mining and the anonymity of transactions raise issues from an ESG perspective.
In summary, while ESG investing is gaining momentum, non-ESG investments like traditional stocks and bonds, hedge funds, commodities and cryptocurrencies still make up a major part of the investment universe.