Aligning Values and Investing Easier Said Than Done

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Aligning your stated values and your spending is something I encourage as part of financial wellness. But it isn’t always easy to do.

For example, someone strongly concerned about climate change will likely avoid buying items like bottled water, plastic bags, aerosols, chlorine bleaches, and disposable cutlery. They might drive an electric vehicle.

These same people often want to invest their money in firms that have policies to protect the environment. Other investors may be especially concerned about gender and diversity equality, fair labor practices, human rights, transparent accounting methods, integrity and diversity in leadership, or accountability to shareholders. This type of investment philosophy is referred to as environmental, social, and governance (ESG) investing.

In recent years, ESG investing has exploded. According to a Wall Street Journal editorial on September 6, 2022, more than $20 trillion is invested in ESG funds. This accounts for 25% of all the professionally managed assets in the world.

On the surface, ESG investing is a worthy goal and certainly in congruence with someone who holds these values. Yet it is not as simple as it looks.

There is no universal agreement about the factors that define ESG. Each fund has its own set of criteria. “Just because the fund has ‘ESG’ in the title, it doesn’t mean it meets your definition of ESG,” says Jonathan Kvasnik, Cherokee Investments, quoted in a June 18, 2018, article by Robert Powell in USA Today, “ESG funds: What you need to know about socially responsible investing.” It’s important to be very clear about your personal views on social issues, environmental policy, and corporate governance before shopping for a fund.