With rising social and environmental issues at the global level, it is each one’s responsibility to do their bit for the greater good.  As investors, the best way to contribute to a noble cause is through Environmental, Social, and Governance (ESG) investments.  ESG investments  involve buying shares and securities only  from companies with high environmental and social responsibility scores.  But one must have a strategy before venturing into ESG investments.

Best-in-Class Screening

This strategy is also called positive screening. It requires people to invest only in the top companies from specific niches.  One may set certain criteria the companies must meet to qualify  to be in  their portfolio.  For instance, those who invest in the automobile industry may shortlist companies that manufacture vehicles with the lowest carbon dioxide emissions. This way, one can consciously encourage environmentally and socially responsible companies to advance in their journeys.

Exclusionary Screening

Also called negative screening, this strategy is  the opposite of  best-in-class screening.   It  essentially  involves excluding certain companies or industries from one’s portfolio.  Exclusionary screening is usually based on one’s specific objective related to ESG investments. For example, if one aims to reduce carbon emissions, one may boycott investments in companies that have recorded high carbon footprints in their manufacturing processes. One may also avoid investing in any company belonging to a particular industry that records such high carbon emissions, such as the fossil fuel industry or the mining sector.

Impact Investing

Another effective ESG investment strategy is impact investing. Here, investors shortlist specific social or environmental concerns they would like to address and invest in industries or companies dedicated to such causes. For instance, those looking to promote sustainable living may invest in the renewable energy sector , while  those interested in boosting public health may invest in the top companies in the healthcare industry. This targeted strategy can help one invest in a noble cause while securing their financial future.

ESG Integration

Here, one chooses to invest only in companies with high ESG ratings. Such companies actively integrate an awareness of environmental and social consciousness into their objectives and business processes. Shortlisting companies through ESG integration involves checking their objectives and making data-backed decisions aimed at environmental or social welfare. Having a steadfast commitment to achieving these goals is also important.

Activist Investing

In this case, an investor  does not choose  companies that are already ESG-integrated.  Rather, they invest in companies that want to change their ideologies and policies to make them ESG compliant. Here, the investor assumes an active role in bringing about reforms in the company and helping it contribute to specific environmental and social causes. Any ideas are communicated by the investor early on to the company, and the company and investor work together to fulfill these ESG targets. Since a lot depends on the investor in such situations, one should have an in-depth idea of their role in the company and the nature of reforms they would like to bring about.

Sustainability-Themed Investing

In this strategy, people invest in companies that want to achieve sustainability. For example, one may focus on waste management or reduced carbon footprints as the ESG goal.  With such goals in mind, one might  choose to  invest in indexes of companies that are top performers in these criteria.  Although this strategy is similar to positive screening, it deals exclusively with indexes and is themed around sustainability.

Norms-Based Screening

Here, investors promote specific international norms or standards by boycotting companies involved in unethical practices. These practices could be corruption, human rights violations, gender bias, or anything else. While promoting good values, investors adhere to the guidelines of global entities, like the United Nations Global Impact Principles. This policy is similar to but much more streamlined than negative screening.

Nature-Based Investing

Nature-based investment aims to conserve natural resources and devise solutions to global issues like climate change, water shortage, deforestation, and ocean pollution. Investors may invest in companies dedicated to eradicating such problems and taking active initiatives to protect nature. The companies’ policies and objectives should also reflect this consciousness.

Portfolio Tilt

Here, the investor “tilts” the percentage of ESG investments in their portfolio so that the ESG investments are higher than the non-ESG ones. This is a low-risk investment strategy that nevertheless fulfills one’s ESG goals and helps companies with an environmental and social consciousness ascend.

Shareholder Action

Shareholders may actively encourage the companies they have invested in to consider ESG issues and work toward resolving them. They may hold meetings with company founders to discuss social and environmental issues impacting the world and suggest ways in which the company can do its bit to eradicate these problems.

ESG investment is a great way to fulfill one’s financial objectives while considering the greater good. But individuals should research well, choose social and environmental issues they are inclined towards, and consider the ESG investment strategies that best fulfill their objectives. Deciding in haste can lead to a loss of money and affect one’s goal. Consulting an investment advisor is also a good idea for making a sound decision that benefits the investor, the company, and the world  as a whole .