Friday Flight - Socially Responsible Investing, Bad Credit Cards, & Finding (literal) Diamonds #264

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ESG Popularity
explains the growing popularity of sustainable or ESG (Environmental, Social, and Governance) investing. She highlights that ESG funds have seen a significant increase, with investments rising by over a third to more than $30 trillion between 2017 and 2019 1. This surge is attributed to the long-term benefits of considering environmental and social factors in business operations, which can lead to better corporate performance and sustainability 1.
Caring about the climate, employees, and communities makes you a better operator as a corporation, and it also helps you think about your future from a longer-term perspective.
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and Matt Altmix2.
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ESG Metrics
Understanding ESG metrics is crucial yet challenging due to the lack of standardized reporting. notes that companies like Morningstar and MSCI provide ESG ratings, but these are not part of mandatory financial reporting, making it difficult for retail investors to assess 3. Companies are improving transparency through annual reports on social responsibility, but investors still need to dig deep to evaluate ESG credentials 3.
ESG metrics are more qualitatively driven than quantitatively driven, making it hard to assess how sustainable or ESG-friendly a company is.
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Despite these challenges, ESG investments have shown to reduce volatility and mitigate risks, especially during market downturns 4.
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ESG Performance
ESG funds have demonstrated competitive performance compared to traditional funds. mentions that ESG investments not only offer financial returns but also provide a sense of contributing to positive social and environmental impacts 5. Morningstar reports that ESG funds have outperformed conventional funds and weathered market downturns better, thanks to their focus on sustainable practices 5.
Having an ESG focus has resulted in mitigated risk on the downside and reduced volatility in general for investments like this.
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This dual benefit of financial return and social impact makes ESG investing increasingly attractive to a broad range of investors 5.