Values-Based Investing: How to Get Started with ESG

While investing has long been about chasing returns, more of us are interested in not only building wealth but staying true to what we believe in. That’s the heart of ESG investing — a values-driven approach to investing that looks at not just what a company earns, but how it earns it.

It’s about aligning your money with your priorities — from protecting the environment, demanding ethical leadership, or supporting social equity. This isn’t just a trend for Gen Z and Millennials, it’s a more intentional way to build wealth and it’s picking up momentum across generations. 

What is ESG? 

ESG stands for Environmental, Social, and Governance. It’s a framework that looks beyond the numbers to evaluate how a company shows up in the world.

• Environmental (E): This aligns with how a company affects the planet. Are they actually sustainable? Do they focus on cutting carbon emissions, reducing waste, and investing in renewable resources? 
• Social (S): Focuses on how a company treats people – their employees, customers, and communities. Are they prompting equity, investing in diversity, taking a stance on human rights? 
• Governance (G): The people running the business are also important. Are the decision makers transparent, ethical, and accountable? 

Why More People Are Putting Their Values Into Their Portfolios

It’s a collective mindset shift about long-term connection and value. Today’s consumers and investors want to see themselves reflected in the companies they support and choose to grow their money with.

While younger investors are leading the charge, investors of all ages are paying attention to how businesses show up in the world. Plus, with so much information at our fingertips, it’s easier than ever to research where a company stands on certain topics.   

Getting Started with ESG Investing 

Before you put your money behind any company or fund, take time to do your own research. Look at how a company ESG scores, read company reports, and make sure their actions align with your priorities. 

Here are a few common ways to begin ESG investing: 

• ESG Mutual Funds and ETFs: This route offers a straightforward entry point to ESG investing. You buy into a professionally managed fund made up of ESG-screened companies. These funds provide a collection of stocks making for a more diversified investment option. Exchange traded funds (ETFs), while similar to an index fund, offer the added flexibility of being traded throughout the day like individual stocks. 
• Individual ESG Stocks: If you want to be hands-on and directly support businesses, you can invest in individual stocks with strong ESG ratings or that reflect your values. 
• ESG Investments in Retirement Accounts: Many retirement accounts like 401(k)s and IRAs now offer ESG fund options. In a Traditional IRA or 401(k) you’ll get tax-deferred growth. In a Roth IRA, your ESG investments can grow tax-free. 
• Donating Assets to Charity: If you’re feeling generous, donate appreciated ESG stocks or funds directly to a qualified nonprofit organization. 

Purpose Still Comes with Paperwork 

Even when your investments are considered ESG and values-driven, the tax rules still apply. Here are key factors to keep in mind so you keep more of your gains and have less surprises at tax time: 

• Capital gains and dividends are still taxable. Whether a traditional stock or an ESG fund, if you sell it for a profit, you’ll likely owe capital gains tax. If you receive dividends, that income is also taxable. If you hold the asset (the ESG stock or fund) for more than a year then it is taxed at a lower long-term capital gains rate. Selling a stock that you’d held for less than a year will result in a higher capital gains rate. 
• Harvesting tax-loss opportunities can help reduce your overall tax bill. If one of your ESG investments (or any investment really) takes a dip, it could be a chance to offset other investment gains by selling at a loss. This strategy is known as tax-loss harvesting and could help reduce your overall tax bill. Be mindful of wash sale rules if you plan to reinvest in a similar type investment. 
• Use a Roth IRA to invest so that your growth is tax-free later. Because contributions made to a Roth IRA are made with after-tax dollars, qualified withdrawals in retirement are completely tax free – including any growth from the stock or funds. So you can support causes you care about today, and reap tax free returns on your investments later. 
• Donate to charity to avoid capital gains tax and get a charitable deduction. Consider gifting appreciated ESG investments instead of a cash donation. This way you avoid the capital gains tax and can claim a charitable deduction for the fair market value of the asset. 

Investing in your values shouldn’t mean leaving money on the table. With the right tools and planning you can build a portfolio that reflects your priorities and supports your financial goals. Whether you’re already investing with impact or just getting started,  TurboTax can help you stay organized, make sense of your investments, and get you every deduction available to you. Not sure where to begin? Check out our guide to basics on investing for tips to help you take that first step confidently.