Investor education

ESG Investing

ESG investing refers to approaches that consider environmental, social and governance factors alongside traditional financial analysis. It covers a wide range of methods, from excluding certain industries to tilting portfolios toward companies with stronger ESG scores. Because the term is used loosely across funds and platforms, careful investors benefit from understanding what a given product actually does before assuming it matches their values or their financial goals.

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What ESG investing covers

The three pillars group different kinds of company-level factors. Environmental factors include emissions, resource use and pollution. Social factors include labor practices, supply chain standards and product safety. Governance factors include board structure, executive pay and shareholder rights. Fund managers combine these factors in different ways: some screen out entire sectors, some overweight higher-scoring companies, and some engage with management to push for change. Two funds labeled ESG can therefore hold very different portfolios. Definitions for related terms are in the Glossary at /glossary.

Environmental, social and governance factors measure different aspects of a company.
Common methods include exclusion screens, ESG tilts and shareholder engagement.
Two ESG-labeled funds can hold very different underlying assets.
Read the fund's methodology, not just its name, to understand what it does.

Why ESG ratings and labels differ

ESG ratings come from multiple providers that use their own data sources, weightings and judgments. As a result, the same company can receive noticeably different scores from different raters. Fund labels also depend on the rules of the jurisdiction where the fund is registered, and those rules continue to evolve. Careful investors treat any single rating as one input rather than a verdict, and they compare a fund's stated methodology with its actual top holdings to check for consistency.

Different rating providers can score the same company differently.
Labeling rules vary by jurisdiction and change over time.
Comparing stated methodology against actual holdings helps spot mismatches.
Treat ratings as one input among several, not a final judgment.

Questions to ask before investing

Before choosing an ESG fund or strategy, define what you want: exclusion of specific industries, a broad ESG tilt, or active engagement. Then examine the fund's prospectus, holdings, fees and tracking approach the same way you would for any other product. ESG products can have higher fees or more concentrated portfolios than broad index funds, so weigh those trade-offs explicitly. Fund performance and costs vary, and past results do not indicate future outcomes. To move from theory to practice, browse the Education hub at /education for portfolio basics and use Find my broker at /find-my-broker to structure your account research.

Decide whether you want exclusions, tilts or engagement before comparing products.
Check fees, holdings and concentration just as you would for any fund.
Confirm broker and account details directly with current provider documents.
Revisit your choices periodically because fund methodologies can change.

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Glossary

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FAQ

Does ESG investing sacrifice returns?

There is no fixed answer. Outcomes depend on the specific strategy, time period, fees and market conditions. Some ESG approaches concentrate portfolios in ways that can help or hurt relative performance. Past results do not indicate future outcomes, so evaluate each product on its methodology and costs.

Are all ESG funds the same?

No. ESG funds use different methods, including exclusion screens, ESG-score tilts and engagement strategies, and rating providers disagree on scores. Read the prospectus and holdings of any fund to see what it actually does before investing.

How do I check if a broker offers ESG funds or screening tools?

Verify feature availability directly in the broker's current product lists and documentation, since offerings differ by entity and change over time. You can structure that research with the Find my broker workflow and confirm fees and account terms before opening an account.