The Rise of ESG: Retiring with Values and Profit

As the world grapples with social, environmental, and governance issues, an increasing number of investors are looking to make a positive impact with their portfolios. In retirement planning, sustainable investing, also known as Environmental, Social, and Governance (ESG), has been gaining popularity. This investment strategy offers potential financial returns and allows retirees to align their investments with their values.

What is ESG Investing?

When selecting investments, ESG investing considers environmental, social, and governance factors alongside traditional financial metrics. It aims to invest in companies that are responsible stewards of the environment, have a positive social impact, and demonstrate strong corporate governance. 

The Global Sustainable Investment Alliance said ESG investing represented more than $30 trillion in assets globally in 2020, projected to grow substantially in the coming years.

Benefits of ESG Investing for Retirees

Sustainable investing offers several benefits to retirees.

1. Financial Returns and Risk Management: Numerous studies have suggested that companies with strong ESG performances can be less risky and more profitable in the long run. A 2020 report by Morningstar found that 72% of ESG indexes outperformed their non-ESG counterparts over ten years.

2. Aligning Investments with Personal Values: Many retirees are increasingly keen to align their money with their values. ESG investing allows them to support companies that prioritize environmental sustainability, social equality, and ethical business practices.

3. Legacy Planning: Retirees who wish to leave a positive legacy can do so through ESG investing. By investing in sustainable companies, they can create a beneficial impact that extends beyond their lifetimes.

Implementing ESG Strategies in Retirement

For retirees interested in implementing ESG strategies, several steps can be taken.

1. Work with a Financial Advisor: Financial advisors with expertise in ESG investing can guide retirees in constructing a portfolio that aligns with their financial goals and personal values.

2. Utilize ESG Funds: Numerous ESG mutual funds and ETFs are available that make sustainable investing accessible. According to Morningstar, over 350 sustainable funds were available to U.S. investors as of 2020.

3. Shareholder Advocacy: Retirees can use their shareholder rights to advocate for positive changes in companies’ ESG practices, further amplifying their impact.

The Bottom Line

Sustainable investing presents a compelling opportunity for retirees to align their investment strategy with personal values. Retirees can enjoy financial returns by considering ESG factors in their investment decisions while contributing to a more sustainable and equitable world. With the guidance of a knowledgeable financial advisor and a keen awareness of available ESG funds, the journey to sustainable investing in retirement is within reach.