More and more investors are becoming interested in how their investment decisions support the issues that are important to the world at large.

I have experienced a large increase in inquiries from individuals, family offices and institutions regarding how their investment decisions can be better aligned with the things that matter to them.

To address this need, environmental, social and governance investing has become increasingly popular with individual and institutional investors.

Also called socially responsible or values-based investing, ESG investing is the alignment of decisions within a portfolio to investments in areas that seek to better reflect the issues that are important to individuals, institutions, family offices and investment committees.

This issue has changed over the years from an exclusive selection process, where a portfolio excludes investments in companies that don’t meet a particular requirement, to an inclusive process, where the selection is based on companies that adhere to or follow a process or best practice in areas related to ESG responsibilities.

ESG has gained the attention of investors and investment committees globally as a way to make a difference.

The evolution of ESG has been mainly due to social awareness and the idea that better-run companies make for better investments. Seeking well-run companies and implementing the elements of ESG best practices have shown to contribute to earnings stability and predictability.

Companies that come up with high scores in ESG factors have been shown to have a lower level of risk for getting into financial trouble.

So how does ESG work as an investment tool?

This investing method seeks companies that align themselves to the times and to our world

and that value transparency and openness. It reflects an increase by these companies of greater social awareness and responsibility and helps better align the investments with environmental challenges.

Some investors put ESG at the core of their portfolios, while others choose to separate a part of their portfolio to invest in companies that meet these factors.

More and more investors are becoming aware that their investment decisions have an impact on our world. And with data from those funds and companies that are conscious and better-aligned to ESG issues, it clearly makes sense from a selection process to choose companies with this factor in mind.

This story is part of a 30-30 series building a better portfolio.