With interest in ethical investing skyrocketing, we give you the low down on ESG values.
ESG stands for Environmental, Social, and Governance, the criteria which are used by investors to find companies whose values match their own. Of course, no company can get top marks on all criteria so investors will need to decide which they choose to prioritise when deciding where to invest.
Let’s look at the different criteria and the company behaviours which define them.
Environmental investment criteria
This is a measure of how a company chooses to manage the impact it has on nature and covers a broad range of issues from waste and energy use to pollution and sustainability. With climate change an increasingly pressing concern, many investors are seeking opportunities to invest in environmentally friendly companies whether they be involved in clean tech, green building or renewable energy.
Investors do need to be aware of greenwashing, when companies make out that they are greener than they really are. Just this week the oil companies have hit the headlines, accused of ‘a great deception’ by environmental lawyers, ClientEarth.
Social investment criteria
You will also find this referred to as socially-responsible investing or SRI. This criteria looks at how a company conducts its business relationships and whether they have a positive social impact and contribute to the welfare of society. It includes issues such as human capital, product liability, stakeholder opposition and social opportunities.
For some individuals that might mean steering clear of investments in certain products they deem unacceptable – alcohol, gambling, tobacco and arms being the major ones – for others it may mean seeking out companies who participate in profit-sharing schemes to benefit the local community or other community investing schemes such as providing affordable housing. Social investing also means prioritising investments in companies focussed on the health and safety of their employees and paying fair wages throughout the supply chain. The idea is that the needs of all stakeholders are taken into consideration, not just shareholders.
Governance investment criteria
Governance is the process by which company decisions are made and implemented in areas including corporate management, employee standards and corruption in the workplace. Investors interested in companies who maintain good governance will be looking at issues of accountability and transparency. Companies are judged on how democratic their decision-making processes are as well as their policies towards conflicts of interest of board members, political lobbying, fraudulent activity and other illegal practices.
If you’d like to take a values-based approach to investing, we can help. The first step is to decide which issues are important to you and the environmental and social outcomes that you would like to achieve. Is it more important to you that a company has impeccable green credentials or would you prefer to prioritise investments in businesses which score more highly on social or governance issues? It is also possible to take a broad-based approach and opt for funds which offer that
Our advisers would be happy to chat to you about your objectives and suggest ESG funds which would suit you. Our investment management partner, Tilney, have been ahead of the game in terms of ESG and their sustainable portfolio is now 10 years old. They now offer a growing selection of ESG funds as well as employing a specialist portfolio manager dedicated to sustainable investing.
Whatever your goals and attitude to risk, there are bound to be fantastic solutions that meet your requirements without compromising returns.
Contact us for coffee and a chat today and start investing in line with your values.