How to Build an ESG Portfolio

Sustainable investing, or ESG investing, is more than a trend; it is the future. ESG investment portfolios incorporate traditional investment principles, such as diversification and investing for the long term, with selections of companies that meet each individual investors ESG priorities.

An ESG portfolio takes into account the inherent risks that companies can face from issues such as water scarcity, poor data security, or climate-related production declines. This makes ESG priorities a powerful resource to find companies with the greatest potential for long-term resilience.

According to a 2021 Morgan Stanleys report, ESG investments consistently outperformed their traditional counterparts between 2004 and 2020. Morningstar found the number of ESG funds grew to 534, an increase of 194 between 2019 and 2021. The track record of sustainable investing is now strong enough that even some of the most skeptical traditional investors are paying attention.

However, building an ESG portfolio still takes a bit of research. Among greenwashing, a lack of transparent ESG reporting, and no clear definition of ESG priorities, many investors are left wondering what qualifies as ESG. The good news is that with consumer and investor demand, companies are taking sustainable priorities seriously.

It is also easier than ever to build an ESG portfolio that balances returns with positive impact. ESG rating frameworks such as Sustainalytics and MSCI USA provide unbiased information to help guide investment decisions for personalized ESG portfolio criteria. Investors can check a companys performance on environmental, social, and governance issues to assess overall risk.