The Informed Investor
Integrating ESG Investing Into A Financial Planning Strategy
March 26, 2025
This is the fourth article in a series on ESG Investing.
This final article in our ESG investing series provides an overview of integrating ESG into your financial planning and investment strategy.
First, in case you missed the previous articles, we will define ESG, also known as Socially Responsible Investing.
What Exactly is ESG?
ESG stands for Environmental, Social, and Governance Investing. This type of investing involves adding another screen or criteria when choosing investments. That means in addition to evaluating an investment’s financial metrics, you also evaluate a corporation’s fund’s policies related to environmental matters (climate change and pollution, for example), social matters (such as diversity and ethics), and governance (style of leadership and transparency).
How Can You Incorporate ESG Into Your Investing?
There are many ways to use ESG strategies in your investment portfolio. These can range from adding this as an additional screen to your existing investment research process to buying investments explicitly created to focus on socially responsible strategies.
Here is an overview of your basic options:
Stocks:
With individual stocks, you can either invest specifically in socially responsible themes (for example, buy stocks in the solar energy industry) or add ESG research as an additional layer to your current research. Just beware of the common pitfalls of ESG ratings, which can be very subjective and are not yet standardized.
Mutual Funds or Exchange-Traded Funds:
If you want simplicity, the mutual fund and ETF industry has produced many options for those who wish to invest based on sustainability. However, you may pay additional management fees for these actively managed funds, so you must know precisely what you are buying (and what you are paying for them).
How to Start
With that background, let’s take a closer look. Here are four tips on integrating ESG into your financial planning and investment management strategy.
1. Always Be Realistic About ESG
Your first step is to realize what you are dealing with. In this case, ESG Investing is still a relatively new field. Yes, ESG ratings exist, but research has shown that these ratings are rooted more in opinion than in fact.[i] Researchers haven’t proven ratings over time, as they base them on short histories. Until there are regulations and required disclosures, researchers and rating agencies do their best with imperfect raw data. If you plan to use those ratings to help you make decisions, just be aware that they are still evolving.
Also, with significant money flowing into this arena, there is the warning that some may try to increase ratings in any way they can. That means those corporations with a high rating may not be as socially responsible as they appear. This practice is known as “greenwashing” and is unfortunately quite common.
2. Do Not Abandon—Add
Based on the first tip, it is critical that you do not abandon ANY of your existing investment metrics and instead add ESG as a final screen. After all, your financial security still matters. No matter how much an investment may help the world, you need it to help secure your future. So treat ESG as a final screen after investments pass your other metrics, such as profitability, revenue growth, and risk.
Believe it or not, adding ESG as a screen may actually reduce your risk. A socially responsible firm with strong policies around today’s issues may be less likely to be impacted by environmental, regulatory, or legal claims. Additionally, companies with strong social policies are less likely to end up mired in controversial situations that can put investors at risk.
3. Fees Still Matter
Fees are critical when growing wealth. Because most ESG funds are actively managed, the fees will be higher than those of most passively managed funds. Be sure to select funds with reasonable fees; otherwise, those expenses could continue to drag on performance.
Finding the Right ESG-Friendly Financial Advisor
When growing your wealth with any strategy, you need to avoid mistakes. That is why most people do best by hiring a financial advisor. But be careful, as there is so much at stake. Bad advice, like bad investments, can be harmful to your wealth.
So, always be sure to look for the critical elements:
Fiduciary
Only a financial advisor who acts as your fiduciary is technically responsible for always putting your best interests first. There is too much at risk, so only work with those who agree, in writing, to act as your fiduciary advisor.
Experience
Financial industry experience is critical in investing. You are usually best served working with an advisory firm with decades of experience, not just a few years. Ideally, look for a firm that has helped clients navigate many economic and market environments.
Support
A financial advisor must understand and stay current regarding your needs to build and protect wealth adequately. Meeting annually is not enough. Look for a firm that meets with you quarterly to help you stay prepared and proactive for whatever the market throws your way.
Like with the ESG ratings, many of the same concepts apply to finding the right advice. Look for a financial advisor who meets these requirements, then ask about ESG knowledge. That can be the cherry on top.
Getting Started With ICC
ICC has served individuals and businesses with financial planning and investments for decades. Our team of advisors operates with transparency and integrity, using investment and management strategies crafted around your goals and expectations. Contact our team today to learn how we can help you or your institution.
If you have $3 million or more of investable assets, please visit our website, www.iccnv.com, or call us at 702-871-8510 to learn more about how we can help you achieve all that is important to your family.
[i] Doyle, Timothy. “Ratings That Don’t Rate: The Subjective World of ESG Ratings Agencies.” The Harvard Law School Forum on Corporate Governance, The President and Fellows of Harvard College, 7 Aug. 2018, corpgov.law.harvard.edu/2018/08/07/ratings-that-dont-rate-the-subjective-world-of-esg-ratings-agencies/.
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