How To Turn Your Investment Portfolio Into One That Benefits The World

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Trading by individual investors became hugely popular during the pandemic, and data from S&P Global market Intelligence reveals that retail trading levels remain higher than they were before the pandemic. However, many amateur investors might not realize that they can make a difference in the world simply by choosing stocks for their portfolio based on what's called ESG, or environmental, social and governance issues .

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January introduced significant turmoil to the markets, and against that backdrop, flows into ESG funds overseen by Hargreaves Lansdown declined for the first month since March 2020. The firm reports that flows into ESG funds plummeted 115% year over year in January. In January 2021, ESG fund flows were up 115%, while in January 2020, Read More

In recent years, one major trend in the investment world has been an increase in preference for stocks with high ESG scores. As more and more individual investors trade using Robinhood or another trading platform without help from financial advisors, they may start wondering how to choose ESG-friendly stocks.

Here are some tips to help you choose companies with a clear sense of social responsibility.

• 1. Start With A List
• 2. Research Stocks
• 3. Analyze The Information You Find
• 4. Reconfigure Your Portfolio For ESG

Perhaps the easiest way to get started is by looking at an ESG-focused exchange-traded fund or mutual fund that publishes its holdings. These funds will give you an idea of where to start when you try to shift your portfolio into more socially responsible investments.

All you have to do is run an internet search for 'ESG mutual funds' or 'ESG ETFs,' and a list of numerous funds to choose from will appear. Not all of these funds publish their holdings, but many do. It may be clear to you why some of the stocks in these ESG-focused funds are in them, but you may not have heard of others.

Either way, the next step is to research individual stocks to decide which address the issues you are most post passionate about.

Once you have a list of companies, you can look for each firm's public ESG-related statements. The easiest way to do this is to do a search using the company's name and the words 'ESG report.' This search should bring up the company's reports covering everything from social responsibility and corporate citizenship to environmental and sustainability issues.

A search like this can also help you check the companies you are particularly interested in, even though they may not appear as part of any ESG fund's portfolio that you look at. Looking for a company's ESG report should immediately show you their lack of ESG efforts or some ESG-friendly activities that have flown under the radar, keeping the firm out of ESG funds' portfolios.

Of course, the best sources to use are those directly on the company's website, although reports from other sites can be helpful in some cases. For example, one site you might want to check is Sustainalytics, which gives most companies an ESG score.

Since the firm is a third party, it might provide a more objective view of the company's efforts so that you aren't relying purely on the company's marketing and public relations language. If the firm's Sustainalytics report doesn't come up with your 'ESG report' search, you can also navigate directly to the site and enter the company's name or ticker in the search box.

Finally, you've got to analyze the information you find. When you're looking at company websites, you will probably realize quickly that some firms go more in depth on their ESG efforts, while others may only briefly make mention of their activities.

Additionally, companies tend to use flowery language and marketing speak that may make it difficult to gauge their activities truly. You may need to do some level of reading between the lines so that you can take a more objective view of their efforts before adding the firm to your portfolio. Some companies might try to make themselves look more ESG-friendly than they actually are.

Environmental, social and governance issues have come to the forefront for many investors as they pick stocks. In fact, studies show that younger investors, in particular, have a preference for ESG-friendly companies.

With just a little bit of time and effort, you can join the growing number of people targeting ESG-friendly stocks and use your stock portfolio to make a positive difference in the world.

Updated on Feb 22, 2022, 3:56 pm

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