Moondog
Term

ESG investing

Also: sustainable investing, exclusions

Investing that takes environmental, social and governance factors into account.

ESG investing reflects a family's values in its portfolio, through exclusions, tilts or engagement. Encoded into the investment policy, those values become constraints the engine must respect.

Values belong in a portfolio when written as explicit constraints, not left as good intentions. The honest version of ESG investing also states the cost: exclusions narrow the opportunity set and can affect return. A family that understands the trade-off holds to its choice far more comfortably.

Related terms

Rebalancing Trading a portfolio back toward its target allocation as markets move it off course. Risk capacity How much risk a family can afford to take, given its goals, liabilities and time horizon. Risk tolerance How much investment risk a family is willing to bear, by temperament and preference. Sharpe ratio A measure of the return earned for each unit of risk taken. Strategic Asset Allocation The long-term target mix of asset classes a portfolio is built around. Stress Test Estimating how a portfolio would behave under adverse market scenarios.

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