The Four Pillars of ESG Investing

Your portfolio should support your financial goals and, if you choose, reflect the things that matter to you. Those preferences might involve environmental concerns, faith-based guidelines, how companies treat people or particular businesses you would rather not own.

ESG stands for environmental, social and governance considerations. It is one way to organize the conversation, but the useful starting point is your own priorities and what your investments actually hold.

Here are four practical steps for bringing those preferences into your investment decisions.

What Do Environmental, Social and Governance Mean?

• Environmental: Questions about a company's use of resources, pollution, emissions and other environmental effects.
• Social: Questions about relationships with employees, customers, suppliers and communities.
• Governance: Questions about leadership, oversight, shareholder rights and business conduct.

Different investors and investment providers can interpret these categories differently. A company or fund that meets one set of criteria may not meet another, so it helps to move from a broad label to specific preferences.

Define What Matters to You

Start with the issues, activities or companies you want to address. A personal faith guideline, an environmental concern and a preference to avoid a specific business are different requests, even if all are sometimes described as values-based investing.

Start with the preferences that matter most to you. Then consider where you are comfortable being flexible so the portfolio can still meet your needs for income, diversification and manageable costs.

Understand What You Already Own

Review the holdings and selection rules of any fund or portfolio before assuming it matches your preferences. A fund's name or headline rating is not a complete description of its investments.

At IFP, agreed exclusions that fit the allocation can be applied to the direct-stock portion of a Personal Index Portfolio. ETFs used for other exposures may still hold excluded companies, and not every requested guideline will fit every allocation. Our values-based investor page explains that distinction.

Weigh the Portfolio Trade-Offs

Excluding companies can change diversification and cause performance to differ from an index, positively or negatively. The question is whether the resulting portfolio still supports your spending needs, risk tolerance and broader financial plan.

Costs and taxes deserve the same attention as your preferences. Before replacing a holding, look at its costs, its role in the portfolio and any gain a sale could realize in a taxable account.

If you already own investments, you do not have to treat the change as an all-at-once decision. For a taxable account, we can discuss working toward the agreed allocation using a tax budget to guide how much gain you are willing to realize along the way. The pace should reflect your holdings, preferences and broader financial needs.

Review When Preferences or Circumstances Change

Revisit the agreed approach when your priorities, finances or available investments change. Confirm what is being excluded, which parts of the portfolio are affected and whether the trade-offs still make sense.

The aim is to keep the approach clear and connected to your life, so you understand how your preferences are being applied and when it may be useful to revisit them.

Bring Your Values and Financial Goals Together

Your preferences are one part of an investment approach built around you. Costs, diversification, taxes and the money you need for the years ahead remain central to your portfolio decisions.

If you would like to understand what you own and where your preferences could fit, schedule an introductory meeting with Todd. We can start with your current portfolio and the things that matter most to you.