“Sustainability is no longer about doing less harm. It’s about doing more good.” — Jochen Zeitz, President and CEO of Harley-Davidson.
More and more, investors are looking to personalize their investment strategies, sometimes by investing in particular sectors or stocks, or with a focus on companies that maintain rigorous ethical or environmental standards.
More investors focusing on these issues has in turn resulted in companies improving their standards in these areas, setting up ethical, social, environmental and governance policies to attract investors.
It was also notable that during the Covid-19 pandemic, companies that set these standards experienced less volatility compared to the overall market.
In this article, you'll learn about the following aspects:
• What is ESG investing?
• What are the benefits of ESG Investing?
• Personalized and hyper-personalized investing
• Considerations for expats
What is ESG investing?
ESG stands for environmental, social and governance. ESG companies set out policies and operate according to their own behavioral standards in these areas to become more sustainable and minimize their negative impact.
Environmental standards can relate to reducing a company’s carbon footprint, reducing waste and pollution, renewable energy use, as well as utilizing green products, technologies and working practices. What that exactly means in practice depends on each company, of course; a mining or international transportation company or industrial manufacturer, for example, will have more to do in this area than an online services startup. Another example is agricultural producers using less chemicals or increasing animal welfare standards in farms.
Social factors relate to how companies impact the communities in which they operate, as well as their internal employee welfare. This may mean improving factory conditions, donating to community improvement programs or infrastructure, establishing diversity and equality hiring procedures, or encouraging employees to spend time on charitable endeavors.
Governance refers to corporate governance, the way a company is run, to ensure that the company adheres to high ethical management and accounting standards. This might include transparent shareholder reporting and accounting, ensuring good practice and the avoidance of conflicts of interest in the board, and the separation of management roles.
What are the benefits of ESG Investing?
There are two major benefits of ESG investing (and please note there are some ESG-related terms you may have heard about, such as impact investing, responsible investing, or socially responsible investing).
The first is the knowledge for the investor that the companies you are investing in are actively working to minimize their negative impact on people or the natural world. Investing in companies aligned with your beliefs makes the whole process more relatable and enjoyable.
The second benefit is often illustrated by the fact that companies that don’t focus on ESG have often blown up and lost money for investors over the last 20 years. There are numerous examples of this, including banks that have used unethical practices; e.g. Wells Fargo was discovered to have been running a fake account scheme in 2016, VW lying about emissions reducing filters in car exhausts, and Tyson Foods was sued in 2020 for wrongful death after employees with COVID-19 symptoms were allegedly told to to keep working. In all these examples, less than ethical behavior caused the share price to nosedive, losing investors money. As a result, ESG investing is believed to provide a measure of security against share prices sharply falling due to bad management, environmental bad practice, or unethical decision-making.
Whether or not investors derive a genuine benefit from ESG investing often comes down to whether a company is sincere and effective in its ESG endeavors, or whether it is just creating policies and reports to entice investors without genuinely enacting them.
Personalized and hyper-personalized investing
Personalized investing is when rather than just investing in generic funds, you can tailor your portfolio to your individual tastes and preferences (often, but not necessarily, incorporating ESG preferences).
Doing this while still achieving your investment goals can be challenging. This is where a good expat financial advisor comes into their own.
Younger generations in particular expect a personalized experience in all aspects of their life more and more, thanks to having grown up with the sophisticated predictive algorithms that personalize our online experience based on our browsing habits and preferences, and they expect the same personalized experience when it comes to their investments.
(Research by financial data company Refinitiv discovered that 64 percent of millennials and 51 percent of investors aged 35-54 are willing to pay more for personalized investing products and services.)
In an age of robo-investment tools, It’s also true that if you’re paying for investment advice, you should expect a personalized experience and approach. You may for example have a particular interest in certain countries, companies, or investment sectors (or ESG preferences combined with particular countries, companies, or sectors).
While AI holds the key to hyper-personalized investing at scale in the future, there are already great algorithms and platforms that let financial advisors take their clients’ preferences into account when building portfolios.
The only limitation is the information that companies provide to allow algorithms to match them with specific investment preferences. For example, algorithms design investment strategies based on carbon emissions published by the companies, however in some cases the published data is not audited and may be inaccurate: so, the end result may be a portfolio not aligned with your beliefs.
Another example of the growing trend of a personalized investment experience is how many investors like to be able to track their investments in real time. Such technology often enables this now, too, such as with an online dashboard that can be accessed by the client at any time.
With their international perspective and often cross-border lifestyles and future plans, expats often feel a greater need for personalized investing than the majority of Americans living in the States.
Expats’ ESG preferences are also sophisticated, again perhaps thanks to their greater awareness of the wider world.
Your expat financial advisor should be able to help you balance these preferences while also achieving your long-term goals.
If you have any questions, don't hesitate to contact us.
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