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Investing in the stock market might seem like an odd way to help make the world a better place. But with socially responsible investing (SRI), there are more ways than ever to positively impact the world when putting your money to work in the market. SRI, also known as sustainable and responsible investing, is like voting with your dollars: Investing in companies that are pursuing positive change and actively not investing in companies you feel are harming the world.
Total assets under management using SRI strategies in the United States have increased from $8.7 trillion at the beginning of 2016 to $12 trillion at the end of 2017, or one out of four dollars invested under professional management in the country, says Farzana Hoque, spokesperson for The Forum for Sustainable and Responsible Investment, a nonprofit dedicated to advancing SRI.
“Most of these assets are from institutional investors,” she said. “But individual investors are increasingly interested in sustainable and impact investing as well.”
Where do ESG scores come from?
One of the first questions that should leap to your mind is “How legit are these ESG scores and who is doing the scoring?” The answer is a combination of private analysis firms, such as Sustainalytics and MSCI, along with in-house experts at investment institutions such as Goldman Sachs and JP Morgan Chase all examine whatever data is available on a company to determine its ESG score.
Because each analytical team crunches the data according to its own internal process, the ESG score of a company — not to mention a mutual or exchange-traded fund that consists of multiple companies — can vary depending on which rating agency you or your financial advisor look at.