ESG investing: Put your money where your values are

If your values are extremely important to you, then learn about ESG investing. ESG stands for Environmental, Social, and Governance, and gives you a way to feel good about where your money is going.

How to Build a Better World While Building Wealth

It's easy to get so focused on the money you'll need in the future that you lose sight of the kind of world you'll want to live in when you get there. But if aligning your investments with your values is important to you, you're not alone. It's so popular that it has a name: Environmental, Social and Governance, or ESG investing. It's becoming increasingly popular; about 25 percent of U.S. assets under management are currently in ESG.

The best news: Feeling good about your investments doesn't mean you have to compromise your bottom line. Studies have shown that returns on ESG investments are comparable to their non-ESG peers.

Of course we all have different values, which makes do-good investing a bit subjective. Some people don't want to invest in companies that own casinos, while others prioritize putting their money behind green energy initiatives, for example.

How To Match Your Values in the Marketplace

As you peruse the various opportunities of values-based investing, the experts have helpfully come up with a number of common values-investing criteria:

1. Environmental includes a company's practices related to climate change, pollution and the handling of natural resources
2. Social includes a company's labor practices, gender diversity, and community involvement
3. Governance refers to transparency and shareholder rights, and whether the company avoids conflicts of interest

To research a particular fund's ESG credibility, check out its Morningstar Sustainability Rating. Advocacy organizations often carefully watch how funds perform on the issues they track. With a little searching, you can find out, for instance:

• If a fund has exposure to fossil fuels
• How major corporations rate on LGBTQ issues in the workplace
• Whether a company ranks within the top 500 green businesses
• Whether company policies give shareholders influence on important issues
• What types of labor practices a company follows

How to Actually Invest With Your Values

With a little research under your belt, the next question to ask is: Where to start? An easy entree into values-based investing is to purchase shares of ESG mutual funds or exchange-traded funds (ETFs).

You can pick an overall ESG fund, or a fund that focuses on a particular cause you're passionate about. 

One other option: You can purchase stock directly from companies you respect. To research a company's ESG practices, scroll through its prospectus, website and Morningstar ratings.

Or consider community investing. You might choose to open an account or purchase a CD with a local bank or credit union that's dedicated to serving a low-income community, or invest in bonds dedicated to benefiting low-income communities.

As good as it feels to support products and causes you believe in, you also want to have confidence in your long-term financial future. So as you venture off into ESG investing, remember the importance of portfolio diversity.