ESG Explained
What is ESG investing?
Environmental, Social, and Governance (ESG) investing — also known as “sustainable investing” — refers to a type of investing that seeks positive returns and long-term impact on society, the environment, and the performance of the business. We utilize four categories in our evaluation of companies (detailed below), including how a company impacts its community and how it treats its employees. Our ultimate goal is to give you exposure to a diversified equity portfolio that invests in companies that share your ideals.
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Environment
- Energy and climate change innovation
- Environmental policy and reporting
- Resource management
Employees
- Compensation and benefits
- Diversity and labor rights
- Training, safety, and health
Community
- Community development and philanthropy
- Human rights and supply chain
- Product
Governance
- Board membership
- Leadership ethics
- Transparency and reporting
Source of data
Our data source starts with ESG ratings from hundreds of different sources, which are then mapped to the categories listed above, converted to a numerical scale, normalized to remove potential bias, and then aggregated into a usable database.
Portfolio construction
We start by eliminating the lowest-rated companies in any of the four categories, ensuring that no portfolio contains an undesirable ESG component. Then, we select the highest-rated companies out of those remaining and purchase positions of about 1% to achieve S&P 500 index neutral sector weighting. Each of the four resulting portfolios will contain between 100 and 105 securities. This process is repeated at the beginning of each quarter, at which point portfolios are rebalanced accordingly.
Your portfolio
Our process allows you to customize your ESG portfolio to suit your preferences and values. You can choose which category or categories are most important to you and blend them in 25% increments. For example, if you want an environmentally conscientious portfolio but also think governance is an important issue, you can select a 75% environment/25% governance mix for your portfolio.
Our goal
As with any investment advisor, our goal is to provide our clients with superior investment results. However, we recognize that in today’s world, that may not be enough. With our ESG investment product, our clients can achieve market-like performance with their equity investment — while knowing they’re investing in companies that share their ideals.
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