The ESG guide to stock trading

In any form of trading, there are a vast number of different methods, styles, and strategies that can be applied. Each individual can have their own unique approach to trading, all in the hopes of getting the most profitable return and minimised risk.

Among the huge range of trading strategies in the financial market, one aspect of trading which has grown increasingly popular in recent years, is ESG stock trading. This form of trading offers a specific approach to trading stocks and has certain criteria which define the method.

If you want to learn more about ESG stock trading, and understand not only how it works, but how you can implement it on your own stock trading platform, then this article will prove extremely helpful!

What is ESG stock trading?

ESG stock trading is a form of trading that deals predominantly with certain stocks in a company, which promotes sustainability. With such a huge choice of companies and shares to invest in, many investors want to trade shares belonging to an environmentally friendly company, to not only bring them profit, but also, create a more sustainable world.

ESG has three parts to it – environmental, social, and governance.

The first part deals with how companies are impacting the environment. This can include their climate change schemes, carbon footprint, greenhouse gas emissions, green infrastructure, renewable energy, and countless other examples.

The second part deals with the social element of a company, and how it impacts employees, customers, communities, etc. This can include employee treatment, customer satisfaction, HR policies, company values, health and safety, and much more.

The final part deals with governance, meaning things surrounding the board of the company, nature of leadership, business conduct, etc. This can include board diversity, history of lawsuits, shareholders’ ability to make decisions, and other factors.

To invest in ESG stocks, traders will look to invest in companies that are promoting sustainability, meaning they are performing well in terms of these criteria.

The measurement of a company’s ESG performance is not universal, and will often rely on traders viewing reports from ESG initiatives, and making the evaluation themselves. Also, there are third-party ESG ratings available to offer more accuracy.

Why is ESG stock trading beneficial?

There are various reasons why professionals want to trade ESG stocks:

  • Promoting sustainability

Investing in ESG stocks is a great way for traders to gain a double-edged win on their investments. Not only will they be getting a potential financial profit from their trades, but they can also rest assured that their investments will be contributing towards sustainability.

The importance of a sustainable world has become a huge factor in the way people are living their lives today – and this includes professional traders. Therefore, with the desire to make successful trades and financial gain, and a passion for building a better world, ESG offers the opportunity for both.

  • Reduced portfolio risk

ESG stocks can also offer a reduced portfolio risk. Every trader wants to ensure their investments in a company are secure, and ESG stocks might be able to provide this confidence.

Often, companies are hit with lawsuits, and even bankruptcy, over failure to provide adequate environmental, social, and governance policies – such as poor health and safety conditions, or illegal emissions.

Therefore, with ESG stocks, these possibilities are ruled out, and the strength of your investments seems more apparent.

  • A sign of good leadership and company values

For companies that promote sustainability, and provide ESG stocks, it reflects well on their reputation as a professional, caring, and morally grounded business.

The fact that a business wants to create a better world, means that improving customer, employee, and environmental conditions are core values. This alludes to the company putting a strong value on trusted relations with investors, and ensuring they are happy and satisfied as shareholders.

Also, it can make the chances of any misleading, or even fraudulent activity in the business less likely – this would majorly impact your shares.

  • Company adaptability

ESG stocks are also a reflection of a company’s adaptability. Sustainability has become a huge consideration for many people across the globe, and to see that companies are implementing appropriate strategies to accommodate this, shows a good sign of adaptability.

This might give you confidence that, whatever external factors may influence social or cultural views, and thus the performances of companies, the company you’re invested in will move with the times and remain relevant and successful – as will your investments.

With this highly useful guide on ESG stock trading, you can now begin to diversify your own trading strategies to include the use of ESG investments, creating more opportunities for profit, as well as sustainability.

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