What type of risk are you taking on as an ESG investor? The answer might surprise you.
When funds have to avoid certain holdings due to environmental, social or governance (ESG) factors, they tend to overweight other stocks and sectors as a result. That means investors could be exposed to certain risks they aren’t expecting. More specifically, my research found that the average ESG investor may be taking on more small-cap risk, interest-rate and inflation risk, and single-stock risk than an investor in a standard all-equity fund.