The public has raised their concerns about extreme weather and corporate carbon footprints, this results in the transition to a green economy which further affects energy and commodity prices, corporate bonds, equities, and specific derivative contracts. Research released by the United Nations Principles for Responsible Investment in 2018 stated that investments with environmental, social, and governance strategies had higher returns than the relevant benchmark indexes. Investors are suggested to consider ESG factors before investing, in order to have a better understanding of risks associated and maximize the investment returns. Here are 6 tips on ETF investment:
1. Exclusionary Screening
The exclusion screening suggests avoiding companies that do not adhere to responsible investment principles, like alcohol, tobacco, or weapons-making industries. In fact, a study stated that the exclusion of these specific sectors does not have significant impact on investment returns in the long run.
2. Best-in-Class Investment
Investors can take reference on the best-on-class investment and seek to include companies with stronger ESG policies and backgrounds.
3. ESG Integration
To broader the evaluation of risks and returns, ESG factors should be incorporated into the financial analysis. By considering ESG factors, investors can evaluate the risks and returns of the companies invested more comprehensively. Investors can include companies with the most satisfying performance by assessing the ESG impacts on companies’ financial performances.
4. Community Investing
Investors should consider the amount of community investment provided by the companies to reduce social and environmental hazards. Financing companies with explicit social or environmental missions and deploying capital to undeveloped communities are examples of community investing.
5. Shareholder Activism
Shareholders can influence corporations’ decisions by exercising their rights as partial owners, they can express their concerns during shareholder resolutions, annual general meetings, and media campaigns. These practices present opportunities to support further collaborations and engagements on corporate sustainability.
6. Thematic Exposure
Investors are suggested to select assets related to sustainability or investments addressing social and environmental problems. For instance, sustainable forestry and agriculture for food security and nutrition, wastewater treatment, and energy products are highly recommended.
Green economy has become the mainstream trend in the world economy. By investing with ESG strategies, investors can enjoy good returns while improving the environment.
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