At the United Nations Climate Action Summit in September 2019 UN Secretary General Antonio Guterres declared that ‘the tide is turning.’ As the climate change crisis takes centre stage on the world’s agenda, individuals are waking up to how we have been mistreating the earth and seeking to make positive changes in all areas of their lives to minimise the negative impact they have on the planet and to encourage sustainability. Following that trend, ethical investing is a rapid arrising topic.
Consumers, and millennials in particular, have a strong interest in ‘doing the right thing’ and are seeking to consume in a socially responsible way researching and analysing companies taking into account climate change policies, carbon footprint, water or renewable energy usage, recycling policies and even environmental benefits for employees. But it’s not solely about environmental factors, they are also concerned about the social aspects of businesses such as how they treat their employees, their policies on diversity, inclusion and ethical supply chain sourcing as well as governance issues such as executive compensation and transparency.
And the tide is turning in the financial world too with a huge increase in interest in so-called ethical investments and the term ESG entering the everyday investment lexicon. ESG stands for environmental, social and governance, those factors mentioned above which are increasingly influencing how investors choose to spend and invest their money. While performance remains key, more and more investors are looking beyond return and seeking to feel comfortable about what their money is being used to achieve by the companies they invest in. It is estimated that one in two investors is now taking ESG factors into consideration when selecting funds and assets, compared to around one in 10 a decade ago.
And we are now at a tipping point whereby ESG investing is not just about having an environmental and social conscience, but it is starting to make sense from an individual investment perspective. Whereas in the past ethical investment may have meant compromising on return, that is no longer the case.
Even more significantly still, ESG is being taking extremely seriously by industry big hitters including senior executives at the world’s biggest asset management companies and government-run pension funds in major economies such as Sweden and the Netherlands. These trojans are actively putting sustainability issues at the forefront of their investment strategies and it makes financial sense for them to do so. Going forward, ESG factors will undoubtedly impact investment performance more and more and, as this article suggests, ‘firms with trillions under management have become too big to let the planet fail.’ In certain countries, such as Sweden, legislation has even been introduced to make sustainable investment of pension funds a fiduciary duty.
This shift is so seismic that some are calling it an investment revolution, hailing the arrival of a new era of sustainable investing. While measuring ESG factors is difficult and the process is still in its infancy, we will see massive improvements in the quality and availability of ESG data in the coming years. The growth of ESG is an exciting development which has to be good news for the planet.
If you’re looking to jump on the ESG bandwagon, we can help. Our financial advisors work in close partnership with Tilney, who have a dedicated Ethical Investment Specialist, employed to review the ESG criteria of funds and sort the greenwashers from those companies who truly live up to their ethical claims. We can assist with looking at your portfolio and suggesting how to switch your investments so that you can feel good about where you are putting your money without compromising on return.
To find out more, contact us at firstname.lastname@example.org.
I have over 20 years of experience in the financial services industry and hold a Chartered FCSI qualification. I ensure that our operations are fully compliant with the rules of our most stringent regulators.