Socially Responsible Investing: What Is an ESG Score?

Posted on: 1 September 2020

Have you ever wanted to invest in the stock market, but you are not quite sure which businesses you want to support? That is a totally appropriate thought process, since many corporations do whatever they want with your money, regardless of whether or not it actually aligns with what you think. Fortunately, many organizations are now willing to share with you their philosophies in order to allow you to make socially responsible investments.

Socially responsible investing (SRI) can mean different things to different people. The United States is a free nation, where individuals can choose to believe whatever they want. Consequently what may seem socially responsible to one person may be against another's set of standards.

In an effort to help people like you know which companies align with your beliefs, here is a breakdown of ESG scores and what they mean. As a preface, an ESG score is a quantifiable system that investigates companies and rates their findings in three parts: environmental, social, and governance. Each part gets its own rating and then these ratings are put together for an overall ESG score. 

1. Environmental 

If you are concerned about global warming and the environment, you should look for a company with a high environmental score. This could mean that they are trying to reduce their carbon footprint, using renewable energy, or limiting greenhouse gasses. These companies are looking to the future and saving the world one investment at a time. 

2. Social

The social score is concerned with people. Specifically, companies who treat their employees and consumers well. Companies with a high social score will have fair wages, great customer service, and a safe work environment. These companies care about people more than money, and it shows in how they treat you.  

3. Governance

These companies run like a well-oiled, honest, machine. Companies that are governed are unlikely to be caught up in fraudulent allegations, corruption, or compromised ethics. You can rest assured that they will do with your money what they claim, instead of lining their pockets unrightfully. How a company is governed cannot be over-appreciated. 

In conclusion, once you have determined the things that matter most to you, you should be able to find a company whose morals align with your own who you can then invest in. Using the ESG system can allow you to make socially responsible investments that you can feel good about while making money.