There’s no doubt that the world’s financial markets are more diverse than ever before, with so-called “ESG” (Environment, Social and Governance) trading offering a relevant case in point.
According to the Frankfurt-based electronic trading platform Xetra, German stock exchange operator Deutsche Boerse said ESG ETs now account for than 16% of total market turnover compared to just 6% during the previous year.
But what exactly is ESG trading, and how can you get started when looking to trade this type of asset?
What is ESG Trading?
As we’ve already touched on, ESG stands for Environmental, Social and Governance, which all encompass sustainable trading assets and gauges potential returns in both financial and human terms.
Environment refers to a company’s impact on the environment, including entities such as carbon footprint and the policies in place to help combat climate change and achieve sustainable operational goals.
The social element of ESG is concerned with stakeholder relations, such as the underlying company’s commitment to gender and racial equality along with their approach to diversity and inclusion programs.
The word ‘governance’ refers to corporate governance, and particularly their board and management team.
In the case of governance, issues can range from reasonable executive compensation and the safeguarding of shareholder rights, along with the diversity of a firm’s board and their litigation history.
How to Get Started With ESG Trading
Ultimately, there are various ways in which you can target ESG trading and assets, including targeting shares in individual companies and businesses with a strong ESG focus.
However, a preferable option may well be to invest in ESG indexes and indices, which include a broad range of sustainable brands in a single basket.
This way you can achieve instant diversification across a broad range of industries, while minimising your real-time exposure and hopefully achieving more sustainable returns over time.
You can select viable indices through a forex broker of your choice, ideally focusing on countries, companies or sectors in which you have knowledge or understanding.
There are certainly benefits to ESG trading, aside from investing in shares that boast similar value sets and outlooks to your own.
For example, figures show that ESG shares generally deliver increased returns in the modern age, with a 2019 report by Morgan Stanley comparing sustainable funds with traditional alternatives between 2004 and 2018.
During this time, sustainable funds delivered average returns of 15.94%, compared with just 14.76% for traditional options.
This is a key insight, and one that highlights sustained growth for ESG stocks over an extended period of time across the globe.