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I have received numerous questions from clients recently asking if we were doing any ESG investing for them. Most of them request that they not be invested in ESG funds. Clients often want to be invested in the four categories that Ramsey Solutions’ discusses, and we can do that well. Here are some reasons why clients are asking about ESG and maybe want to avoid those funds.

As the world becomes increasingly focused on sustainability and social responsibility, the popularity of Environmental, Social, and Governance (ESG) investing has grown. ESG investing is an investment strategy that takes into account a company’s environmental, social, and governance factors when making investment decisions. While this approach may seem like a responsible and ethical way to invest, there are valid reasons to be skeptical of ESG investing.

Too much subjectivity

First and foremost, ESG investing can be highly subjective. There is no standardized way of measuring a company’s ESG performance, and the criteria used by ESG rating agencies can vary widely. What one investor considers an acceptable environmental or social responsibility level may differ significantly from another investor’s perspective. As a result, ESG investors may be making investment decisions based on incomplete or inaccurate information.

Limit investing opportunities

Furthermore, ESG investing can limit investment opportunities and potentially result in lower returns. By excluding companies that do not meet specific ESG criteria, ESG investors are reducing the number of available investment options. This can limit diversification and potentially lead to lower returns over the long term. Additionally, some companies excluded from ESG investment portfolios may be highly profitable, making them attractive investment opportunities.

Higher Fees

Another concern with ESG investing is that it can lead to higher fees for investors. Many ESG funds charge higher fees than traditional funds, requiring more research and analysis to determine a company’s ESG performance. These higher fees can eat into investment returns, making ESG investing less attractive for investors prioritizing maximizing returns.


Finally, ESG investing can be subject to “greenwashing.” This is the practice of making misleading or unsubstantiated claims about a company’s environmental or social responsibility. Companies may tout their ESG credentials to attract ESG investors, even if their actions do not match their claims. ESG investors may be more likely to fall prey to greenwashing because they prioritize environmental and social responsibility, potentially leading to investment decisions based on inaccurate information.

The right approach

In conclusion, while ESG investing may seem like a responsible and ethical investment strategy, there are valid reasons to be skeptical of this approach. ESG investing can be highly subjective, limit investment opportunities, result in higher fees, and be subject to greenwashing. Investors should carefully consider their investment goals and priorities before deciding whether ESG investing is right for them.

If you have questions on this type of investment strategy or want to speak to one of our financial advisors about investing, contact one of our eleven advisors to help answer your questions today.


June 15, 2023

Andrew Young

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