How Do ESGs Compare to Other Eco-Friendly Investments?
Socially and environmentally responsible investing is all the rage lately, and today’s investors can choose from hundreds of stocks, mutual funds, and municipal bonds that are marketed as beneficial to the environment.
Eco-friendly investing puts money behind companies that claim to be better for the environment by actively trying to lower their carbon emissions. But investors who want to make decisions with the environment in mind can find themselves trying to navigate a confusing landscape.
What are ESGs?
ESGs (i.e., environment, social, and governance) are mutual funds made up of companies that claim to benefit the environment through their business practices; commit to fair compensation and social responsibility for their employees, vendors, and communities; and offer executive compensation and shareholder rights transparency.
ESG funds have been rated by Wall Street for their eco-social business models. While they’ve grown by trillions of dollars worldwide in the last several years, they’ve started to cool in 2022 as more people have analyzed their costs and returns.
The Downside of ESGs
Wall Street’s researchers developed rating criteria that analyzes several aspects of company-reported practices. But in reality, many ESGs are large, multinational companies that also have holdings in dirty energy, such as oil and gas that want to “greenwash” their business model.
Greenwashing is an attempt to give people false or misleading information about a company’s practices and products in order to capitalize on consumers’ preference for eco-friendly products. Greenwashed investments are publicly traded companies that are portraying themselves as environmentally friendly, except they don’t have the receipts to prove it, and the Wall Street analysts don’t require them, anyway.
ESG’s, like all publicly traded companies, are dedicated to providing returns to shareholders, not the environment. Many are not developing innovative environmental solutions. They invest shareholders’ money in the entire company, not just the green initiatives.
There’s also evidence that ESG investors pay as much as 40% higher broker and fund management fees, and for years their returns have underperformed the market.
Investment Alternatives with No Fees and More Impact
Investors can have more positive environmental impact by diversifying their portfolios with money market accounts and CDs from “green banks”, such as Clean Energy Credit Union. Diversified portfolios are better protected during times of market volatility, and Clean Energy Credit Union’s savings vehicles are an excellent hedge with no fees and interest rates as high as 3.75% APR.
ESG investing is pretty far removed from having a direct impact on the environment. The funds deposited in Clean Energy Credit Union money market accounts and CDs are pooled and made available as loans to qualified members, so they can buy electric vehicles, make energy-efficient home improvements, install solar panels, heat pumps, and more. Clean Energy Credit Union’s loans accelerate the adoption of renewable energy to make everyday people – homeowners, business owners, and families – able to afford the future of energy that will lower their carbon emissions and energy costs.
For investors that want proof of impact, Clean Energy Credit Union has a carbon offset calculator that shows the amount of carbon emissions that could be reduced by the money held in their savings account.
Investors could also look for green technology and manufacturing stocks. Several companies are making progress in battery storage, electric vehicles, solar and wind energy, and new renewable energies, such as hydroelectric. They need investors to fund the hard work of discovery, rigorous testing, and manufacturing.
Considerations When Making “Green” Investments
There are many ways to invest your hard-earned money in funds and savings that represent your values, but be sure to do plenty of research first:
- Read prospectuses, disclosure statements, and annual reports carefully
- Look at stocks’ historical returns to make sure they’re meeting their projections, and if not, why not
- Make sure ESGs are truly having a positive impact on our planet and not just greenwashing
- Compare fees from different institutions to get the best rates
- Look for green alternatives to stocks to complement and diversify your portfolio
Clean Energy Credit Union offers its members financing for all types of carbon-reducing home and lifestyle improvements. Our mission is to make clean energy accessible to more people. If you’re building your investment portfolio, open a Clean Energy Credit Union money market account today or purchase CDs that will help you earn money and live your values.