There is a current stigma that “Ethics” and “Investing” are mutually exclusive. This perception dates back since the Great Depression and is only amplified by movies such as “Wolf of Wall

Street” as well as recent visceral experiences attributed to the 2008 & [now] 2020 Recession. However, with the recent prominence of millennials and calls for social change — a new niche

in the investing community has started to emerge: ESG (Environmental, Social and Corporate Governance). The premise of ESG is simple: The 3 mentioned factors are qualitatively and

quantitatively analyzed and converted into composite scores. Investors ascertain if these scores pass a certain threshold [which varies between investors] to gauge a company’s sustainability

the factors interrelate with each other) ESG Factors in a more granular way to verify our thesis statement. They are as followed: Environmental, Social, and Corporate Governance. The

following Venn diagram that I generated can be leveraged as a template to visualize the interrelations between these factors: * ENVIRONMENTAL (“E”) Intuitively, factors such as carbon

emission as well as utility usage play a key role in “E”. This however isn’t only limited to the products and services that are developed post-production. Rather, pre-production parts are an

integral part as well. For instance, in the manufacturing floor a company that has a better “E” score is more likely to be more efficient at assembling products (less reworks and products

thrown away) as well having stronger procedural methodologies for waste management compared to its peers within its industry. Material selection of a product also plays a role in favorable

“E” values. For instance, an ESG oriented battery-maker might make more lithium-centric batteries which have a relatively high life expectancy, are less likely to corrode and leach, and

release fewer dangerous properties such as phosphate in the environment. Lastly, empowerment of communities through development of sustainable infrastructure is a common trend of ESG-centric

companies. For instance, the architecture-firm, Apogee, focuses on the development of solar & ecofriendly material in areas such as California where it is more viable to utilize Solar

Energy to reduce expenses over the long-term. Thus, providing better customer satisfaction, payments for iterative services, and “sustainable” long-term growth. Interestingly, there are some

nuances in industries that are typically screened out by “E”[such as Energy and Weapons Manufacturing]. This includes companies such as NextEra Energy which has outperformed its energy

peers and focuses on delivering clean and alternative energy. Additionally, there might be companies that have a good public perception but fail the “E” stress test. Examples include Costco

which has a lower carbon footprint score compared to its industry peer-Walmart which in contrast has a very negative public perception. Ultimately, all these factors should be taken in

consideration when evaluating “E”. Overall, these are some of the factors that institutions and retail investors look at when generating an “E” composite score: 2. SOCIAL (“S”) The “S”

component primarily looks at factors such as employee and customer treatment & satisfaction. As a recent graduate I have seen firsthand experiences as to the true value of this factor.

One of the main linchpins as to why I joined Abbott was the fact that there were programs set in place for continual education and loan assistance on top of competitive benefits, perks, and

salaries. This typically leads to better company retention, camaraderie, and performance. In contrast, company malpractice in these areas such as the working environment and compensation can

lead to lawsuits to the detriment of the company. Adaptability, in current social and political trends, is also a vital metric. For instance, retailers such as Victoria Secret have become a

distressed asset after the chronic refusal of the adoption of the body-positive movement. Much to its chagrin, competitors such as American Eagle Outfitters and Nordstrom adapted and have a

stronger market presence in this industry. We can also expand out to other industries such as finance, e-commerce, and software. Banks such as Wells Fargo and Loan Providers such as Navient

have become distressed relatively to its peers. Wells Fargo, for instance, was embroiled in lawsuits and scandals over discriminatory practices that targeted certain subsets of the

population with activities such as opening double-digit accounts for individuals and misguided customer services (https://wfsettlement.com/). Navient currently is notorious for customer

complaints and misrepresentation (https://www.forbes.com/sites/zackfriedman/2020/05/10/student-loans-navent-lawsuit/#cd6acd720c60). Anecdotally, I have experienced firsthand dropped customer

support calls and inaccuracies on repayment options. It wasn’t until May 11, 2020 that Navient reached a $1.5 Billion settlement to resolve similar issues that I had faced. Historically,

these 2 companies are collectively in the bottom “S” tier of their industries. In contrast, competitors such as JP Morgan Chase have been stronger in financial literacy, social/job mobility,

and have a knack for being proactive with future market trends such FinTech and Blockchain Technologies. These factors percolate well in terms of returns (10 Year Average Annual Return is

11.2% and 2.7% for JP Morgan Chase and Wells Fargo respectively). Interestingly, there have been instances where poor “S” scores don’t necessarily mean drops in Stock Return. The most

apparent are companies such as Facebook and Amazon (https://www.theatlantic.com/technology/archive/2019/11/amazon-warehouse-reports-show-worker-injuries/602530/) who have consistently had

issues regarding Labor Management, Data Integrity & Cybersecurity, and Tax Strategy. Due to its unique niche in the stock market it has had a 7-Year Average Annual Return of 33% and 36%

respectively (Typical Stock Market Average Annual Return ~ 7%). Although, these two mentioned companies excel in other areas of ESG such as corporate governance and management it might not

be palatable to a more “S ‘’ focused investor. There are however, leaders in the technological space that are viable alternatives. These include Apple, Microsoft, and NVIDIA which have a

7-Year Average Annual Return of 23.5%, 32.3%, and 59% respectively. These companies have favorable supply chain treatment, data integrity and job mobility. Overall, these are some of the

factors that institutions and retail investors look at when generating an “S’’ composite score: 3. GOVERNANCE (“G”) Generally, “G” revolves on criteria such as a company’ leadership and

effectiveness, shareholder transparency, corruption, auditing prowess, tax pay strategy, and even lobbying. This metric is typically used as a guard band against companies that have a higher

affinity for bankruptcies, antitrust issues, and lawsuits which ultimately makes “G” a strong risk management tool. These metrics have a knack for proactively detecting unfavorable company

behaviors such as those previously mentioned (Wells Fargo, Navient, and Victoria Secret) as well as higher profile cases such as the collapse of Enron & Theranos, BP’s Deepwater Horizon

oil spill and the Volkswagen carbon-emission scandal. In the latter case, MSCI’s ESG Research detected issues regarding service quality, bribery and fraud, and collective bargaining before

it was publicly known that Volkswagen had falsified carbon emission data ( https://www.msci.com/volkswagen-scandal ). Overall, these are some of the factors that institutions and retail

investors look at when generating an “G” composite score 4. METHODOLOGY There are many ratings agencies such as RefinitIv, MSCI, and Sustainalytics that provide ESG scores for individual

companies and collective funds. Though there are slight variations in their methodology there is plenty of overlap. Collectively, these agencies analyze hundreds of ESG Factors across

thousands of companies, and some such as Refinitiv have done this since 2002. These ESG databases typically look at controversies, annual reports, company and NGO (non-profit government

organizations) website findings, stock exchange filings, CSR (corporate social responsibility) reports, and other news outlets. It is also worth mentioning, that data-integrity and daily

updates are paramount and are ensured via continual computerized and manual screens, independent audits, and management reviews. Interestingly, — when it comes to funds certain assets such

as cash and futures (options, shorts, forwards, etc..) are excluded from analytical models. We will now go through a deeper dive in the analytical models. The main modeling inputs include:

the “magnitude” of ESG risks and related issues [which can vary from industry], unique and unforeseen issues due to market trends, company & industry ESG exposure, and the parameter

“Beta” which assesses variation amongst industry peers. The risk factors in Beta measure: (1) Auditing & Employee Compliance (2) Outside/Malicious threats such as cybersecurity and data

integrity (3) Complexity of issues such global supply chain and company acquisitions/mergers (4) Physical limitations on innovation and technology and (5) Unmanageable and residual risk. Now

since we’ve set the model framework, we can now visualize how ESG composite scores are generated. Generally, a matrix of ESG related factors is tabulated via quantitative and qualitative

methods. The qualitative methods typically output 3 discrete scores: -1, 0, and 1. For instance, the ESG metric/question “Does the corresponding company have a EHS (Environmental, Health,

and Safety) Policy?” would have the binary value(s): 0 (No) and 1 (Yes). In contrast, the ESG metric/question “Was there a serious audit finding?” would have the binary value(s): 0 (No) and

-1 (Yes). Quantitative methods typically use continuous values ranging from -1 to 1 with 0 as the datum. For example, a company that is above average in water conservation compared to the

general market and its peers might net a value of 0.80 whereas if it is slightly below average in carbon emission compared to the general market and its peers might net a value of -0.20.

When looking at different industries certain metrics matter more and thus are weighted higher. For example, a food company will have a higher ESG weighted towards labor and work rights

whereas a software company will have a higher ESG weighted towards cybersecurity/data integrity. An example using qualitative metrics having the binary values “0” and “1” for simplicity is

shown below, it is worth noting for Table 4. & 5 A HIGHER TOTAL SCORE is indicative of a better “ESG” rating. This “total score” is found on the last row of Table 4. & 5 next to the

“total weight” value of 26. The formula to calculate the “total score” is Σ (Weight x Score) of an individual company: When looking at Table 4. & 5 — Although “Aditya’s Avocados” has a

lower ESG score than “Cloud Space” it did better compared to its industry peer “Harvir’s Hotdogs”. Ultimately, industry/sector comparisons as well as general stock market comparisons (seen

in Table 4. & 5) are common rating agency features. These features are typically integrated in brokerages and help filter for ESG-specific stocks and funds. Collectively, the tools

provided by ESG rating agencies and applicable brokerages can be leveraged to address our thesis question. Sections 5–8 will provide a high-level summary on aspects such as scoring rubrics,

unique insights, and search fields to appropriately screen for ESG stocks and funds. They are as followed: 5. MSCI ESG RATINGS: https://www.msci.com/esg-ratings (Database that analyzes a

companies individual ESG rating). 6. SUSTAINANALYTICS & MORNINGSTAR ESG RATINGS: 7. REFINITIV ESG RATINGS: 8. FIDELITY & TD AMERITRADE ESG SCREENS (BROKERAGE): 9. _“ESG is a viable

risk management tool and provides stronger returns compared to the general stock market.”__ _IS THIS A VALID STATEMENT? We now have the tools and background needed to address our initial

thesis question. To tackle our question, we must establish a baseline to refer to. Historically, the most well-known reference point is the S&P 500 Index which looks at the top 500

largest and stable American companies. Through leveraging sources such as Fidelity, TD Ameritrade, Morningstar, and Portfolio Visualizer we can identify potential candidates that follow the

top 400–500 largest and stable American companies but also use ESG as a tool to screen for appropriate companies. Figure 6B indicates that the S&P 500 Indexes average SustainAnalytics

ESG score is 23.50. This indicates that an appropriate ESG centric S&P 500 Index needs to have an ESG score lower than this value as well as competitive performance. Through iterative

research it was found that the following are viable: ● DSI (ETF) (Mentioned briefly in Figure 6A) ● VFTNX/VFTAX (Mutual Fund) To evaluate the ETF’s: DSI & VOO (S&P 500 Index ETF)

were compared. Overall, the 10 Year Average Annual Return, Standard Deviation, and Expense Ratios are: 12.61%, 13.05%; 13.08%, 13.07%; and 0.03%, 0.25%, for DSI and VOO respectively. They

are shown below: To evaluate the Mutual Funds: VFTNX and VFIAX (S&P 500 Index Mutual Fund) were compared. It is important to note that VFTAX follows the same trajectory as VFTNX and

costs a similar initial minimum as VFIAX; however, it is relatively young and can’t be analyzed across a timespan of 10 years. Overall, the 10 Year Average Annual Return, Standard Deviation,

and Expense Ratios are: 13.83%, 13.12%; 15%, 14%; and 0.12%, 0.04%, for VFTNX and VFIAX respectively. They are shown below: THROUGH LOOKING AT FIGURE 13. & 14. WE CAN VERIFY THAT YES!!

ESG IS NOT ONLY VIABLE COMPARED TO ITS PEERS BUT PREFERABLE. NOT ONLY ARE YOU INVESTING IN FUNDS AND COMPANIES THAT PROVIDE STRONG SOCIAL BETTERMENT, BUT YOU CAN ALSO OUTPERFORM THE GENERAL

STOCK MARKET EVEN WHEN ACCOUNTING FOR EXPENSE RATIO!! Now, since we’ve established credibility to our thesis, we can take it one step further and identify the best performing ESG ETFs and

Mutual Funds in the whole stock market. Through iterative research they are as followed: ● ETF: NULG (Large Cap Growth) ● Mutual Funds: NWCAX, MGNDX (Both Large Cap Growth) and ETAGX (Mid

Cap Growth) One thing to note however is that ETAGX can be treated as a “wild card” since it’s more sustainable than its Mid Cap Growth peers but less than the S&P 500 Index (Large

Blend) with a higher “unfavorable” SustainAnalytics score of 26 compared to the S&P 500 Indexes 23.50. We will however leverage Figure 4 and treat ETAGX as acceptable. The results are as

followed: THE LARGE-CAP GROWTH AND MID-CAP GROWTH ETF & MUTUAL FUNDS STILL OUTPERFORM THE BASELINE EVEN WHEN ACCOUNTING FOR ITS HIGHER EXPENSE RATIO — THUS FURTHER SUPPORTING OUR THESIS

STATEMENT. 10. REFERENCES: HTTPS://WWW.REFINITIV.COM/CONTENT/DAM/MARKETING/EN_US/DOCUMENTS/METHODOLOGY/ESG-SCORES-METHODOLOGY.PDF

HTTPS://WWW.MSCI.COM/WWW/RESEARCH-PAPER/ESG-RATINGS-METHODOLOGY/0175943017

HTTPS://WWW.MORNINGSTAR.COM/CONTENT/DAM/MARKETING/SHARED/RESEARCH/METHODOLOGY/744156_MORNINGSTAR_SUSTAINABILITY_RATING_FOR_FUNDS_METHODOLOGY.PDF HTTPS://WWW.SUSTAINALYTICS.COM/ESG-RATINGS/