What is ESG Investing and Why You May Want to Start
Joy Wallet is advertiser-supported: we may earn compensation from the products and offers mentioned in this article. However, any expressed opinions are our own and aren't influenced by compensation. To read our full disclosure, click here.
What is ESG investing?
- Get up to a $0.18 rebate
- No commission or per-contract fees
- Earn 5.1% APY*
- No fees. No subscription required.
- 6% Yield or more
- Explore thousands of bonds yielding 6%+
ESG factors
Environmental
Social
Governance
ESG investing vs. socially responsible investing
- Get up to a $0.18 rebate
- No commission or per-contract fees
- Earn 5.1% APY*
- No fees. No subscription required.
- 6% Yield or more
- Explore thousands of bonds yielding 6%+
Pros and cons of ESG Investing
- Consistently outperforms the market. ESG stocks have a strong history of outperforming the market in the past decade and have done particularly well during the 2020 pandemic. As ethical and environmental practices continue to gain traction thanks to environmental movements and focus in the business world, more investors are interested in buying into ESG stocks. Based on past financial performance and the current emphasis on ethical and environmental practices, ESG stocks are anticipated to continue to perform well.
- Allows you to feel good about where you’re putting your money. One of the main advantages to investing in ESG stocks is knowing you’re supporting businesses that are committed to meeting environmental standards, focusing on ethical practices, and continuing to evolve in a socially conscious manner. If you like to feel good about the types of companies you’re buying ownership in, ESG investing is a great option.
- Lower risk. Not only do ESG stocks perform well over time — but they’re also lower-risk options. If you can identify a true ESG company, you’ll most likely be taking on a less risky investment. Since ESG focused companies focus on fair practices and adhering to government regulations, they tend to be less volatile and have stronger reputations.
- Excludes some profitable opportunities. Of course, on the downside, if you focus solely on ESG investing, you’re likely to miss out on some short- and long-term investment opportunities. Although supporting ethical and environmentally-conscious businesses can be profitable, many other corporations and startups continue to outperform the market. If you’re more of a passive investor, you might have considered ETFs or IPOs to diversify your portfolio. While these investments are often safer and more likely to witness steady growth over time, some of the most lucrative options (particularly those that offer portions of stock from the S&P 500) will not always align with ESG criteria.
- Requires more research. Determining if a company meets ESG standards can be time-consuming and might require combing through sustainability reports. If you’re working with a financial advisor, you might be charged extra if you decide to focus on ESG dedicated companies. If you’re handling your own investments, be ready to spend significant time looking into the companies you aim to support and be sure to keep up-to-date on their practices in the future. Many companies may claim to be ESG friendly, but after research, you might find that their sustainability reports do not reflect these allegations. Since ESG companies are trendy right now, many corporations that do not fully align with this definition are alleging to be “eco-conscious” or “environmentally aware.” Ultimately these claims don’t hold any weight if there’s no data to support them. This extra research might not be an issue for already active investors, but if you prefer to buy into good opportunities without timing the market or researching a company in-depth, ESG investing might be more of a challenge than you’re looking for.
How to start investing in ESG stocks
Decide how you want to invest
Reflect on your ESG values
Choose your ESG investments
Robo advisors offering ESG-designated investing options
Robo Advisor | ESG Only? | Fees | Minimum Investment |
Betterment | No | 0.25% - 0.40% | $0 |
Ellevest | No | $1 - $9 monthly | $0 |
Ally Invest | No | 0% - 0.30% | $100 |
Earthfolio | Yes | 0.5% | $25,000 |
Wealthsimple | No | 0.40% - 0.50% | $0 |
Betterment
Ellevest
Ally Invest
EarthFolio
Wealthsimple
- Get up to a $0.18 rebate
- No commission or per-contract fees
- Earn 5.1% APY*
- No fees. No subscription required.
- 6% Yield or more
- Explore thousands of bonds yielding 6%+
The bottom line
Joy Wallet is an independent publisher and comparison service, not an investment advisor, financial advisor, loan broker, insurance producer, or insurance broker. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. They are not intended to provide investment advice. Joy Wallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. We encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Featured estimates are based on past market performance, and past performance is not a guarantee of future performance.
Our site doesn’t feature every company or financial product available on the market. We are compensated by our partners, which may influence which products we review and write about (and where those products appear on our site), but it in no way affects our recommendations or advice. Our editorials are grounded on independent research. Our partners cannot pay us to guarantee favorable reviews of their products or services.
We value your privacy. We work with trusted partners to provide relevant advertising based on information about your use of Joy Wallet’s and third-party websites and applications. This includes, but is not limited to, sharing information about your web browsing activities with Meta (Facebook) and Google. All of the web browsing information that is shared is anonymized. To learn more, click on our Privacy Policy link.
Courtney Johnston is a freelance writer, specializing in finance, travel, and health. She has written for The Chicago Tribune, Benzinga, BestReviews, Mashvisor, Fundera, MoneyGeek, and The Culture Trip. She also teaches writing instruction at the University of Indianapolis. Courtney currently resides in Indianapolis.