ESG Investing in 2024: How can I tell if a stock or fund is ethical or ESG compliant?

ESG investing is becoming increasingly popular with investors. But as this happens, it begs the question as to just how you can tell if an applicable stock or fund is ESG friendly?

So how can I tell if my stock or fund is ESG compliant?

As tough as it is to disappoint our readers, there is no way, because there is no official standard as to what ESG involves. It is true that ESG is an accepted acronym, but there is no universal agreement about what indicators should be used to judge a company’s performance. And the closest thing to ESG regulations as far as reporting is concerned is that companies are prohibited from ‘greenwashing’.

There is unofficial consensus that a handful of industries are ‘unethical’, such as tobacco and gambling. But what is ethical? – that is up for debate. You might have heard of the Responsible Investing Association of Australiasia (RIAA) and/or that some funds are certified by the RIAA. This is not an indication that is is ‘ESG-friendly’ per se, but that the applicable fund is living up to the promises it said it would. For instance, it it promised no gambling companies, there should not be gambling companies. No, a fund won’t be punished by that body or another just for investing in the ‘wrong industry’. Instead that fund may cop some scruitany for doing something that it told investors that it would not do.

Ultimately, what is or is not ESG friendly is up to you as an individual investor. Even if some opinions may be shared by a majority of likeminded investors, for instance that weapons and gambling stocks are not acceptable, it is not as if there is some worldwide-accepted standard.

How can I tell if my stock or fund is ESG investing in the right way?

One approach is to look for companies that have high environmental, social, and governance (ESG) ratings in some individual metrics that are important to you. These ratings evaluate companies based on their performance in areas such as carbon emissions, labour practices, board diversity, and more.

Another way to identify ethical stocks and funds is to look for companies that are part of sustainability indices. These indices are composed of companies that meet strict ESG criteria and are considered leaders in sustainable business practices. You could even look at certain ETFs that have a focus on sustainable investment and choose to invest in the companies that those funds do, although of course you should do your own due diligence on those investments before deciding to invest yourself.

DYOR

You can also research individual stocks or funds (Do Your Own Research) to learn more about their environmental and social impact. Look for companies that prioritise sustainability and social responsibility in their business practices, such as reducing waste and promoting ethical labor standards. You may see this information in their annual reports. Some companies’ industries might be matches made in heaven, such as renewable energy companies.

Finally, there are organisations that specialise in evaluating the ethical and ESG performance of companies and funds. These organisations publish rankings and reports that can help you make informed investment decisions based on your values.

ESG investing – it can be done

Overall, there are many ways to identify ethical and ESG compliant stocks and funds. By doing your research and staying informed, you can invest in companies that align with your values and priorities. From there you can strive to ensure you are investing so that you can achieve a positive societal impact, and make money for yourself while doing this.

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