QuantFu Blog

Thinking About ESG for the Retail Investor

Written by Calvin Reinhardt-Ertman | Jun 17, 2022 5:41:22 PM

If someone walked up to you on the street and offered you a thousand bucks just for being you, you’d take it, right? You work hard, and extra cash always comes in handy. Now you can buy that TV you’ve been wanting, or take a trip to somewhere you’ve always wanted to go, or listen to your mother and save it. However, if you got more information about where the money came from, you might reconsider. Maybe the money was stolen, and now you want nothing to do with it. Even if you took the money, spending it wouldn’t make you as happy because of the source.

Investing can be much the same way. As an investor, your top priority is probably to make some extra cash. However, considering the impact of your investments could also be very important to you, both emotionally and financially. All companies have impacts, good and bad, and the question you might ask yourself when considering an investment is how good and bad of an impact each company makes. Does the company pollute the environment or promote responsible reuse and recycling? Does it exploit labor in less developed countries or does it have a fair wage policy? Does it sell products that could kill you or improve the likelihood of longer, healthier lives? To assess the non-economic impact of companies, investors use an approach called ESG (environmental, social, and corporate governance). ESG considers the impact that corporations have in terms of their commitment to environmentalism, social justice and the social good, and diversity, equity, and inclusion initiatives.

One of the more obvious reasons investors pay attention to ESG is for personal moral reasons. While ethically questionable activities can be profitable, as an investor you might not feel good about reaping those profits. For example, in the wake of mass shootings, the stock prices of firearms manufacturers often rise. If you’re invested in Smith and Wesson, you might find it difficult to celebrate a boost to your portfolio amid the tragedy. As such, considering ESG allows you to feel comfortable about your investments. If you feel strongly about protecting the environment, you might want to keep oil companies out of your portfolio. If you feel strongly about wellness, avoid tobacco companies. You get the picture; by considering ESG in your investing, you can make sure that your investments align with your principles.

Apart from the moral reasons for using ESG information, paying attention to ESG can have financial benefits as well. Companies that are governed responsibly are likely to continue to generate profits and develop, making them attractive for investors. As climate change persists, companies with strong environmental practices will have advantages, and so likely will be strong investments. Companies that are insensitive about social issues may face backlash in the future, which could impact their bottom lines. Largely depending on your future expectations, considering ESG factors could help increase your portfolio’s performance.

Trading with QuantFu allows complete control over your portfolio, so you can choose to exclude stocks you find morally objectionable from your trading. Additionally, users can preselect baskets of “ethical stocks” to trade, companies that have been identified as responsible or have high ESG scores. 

In the next few months, QuantFu is planning to directly integrate ESG into the user experience. Users will be able to design and control portfolios based on ESG scores. One more pro tool to make sure you feel good about the money you’re making.