22nd April 2023 is Earth Day, which recognises the achievements of the environmental movement and encourages action to protect the natural resources we have for future generations. We celebrate the increasing popularity of ESG investing and discuss how you can invest for a better future for the planet.
What is ESG?
ESG stands for Environmental, Social and Governance. It is a framework that helps investors understand how companies manage risks related to the sustainable and ethical impact of their activities.
Not so long ago, environmental issues were considered unimportant to economic growth and investing to minimise environmental impact meant sacrificing return. However, as temperatures rise, water becomes increasingly scarce and climate risk exacerbates, we are reaching a tipping point whereby companies that ignore the impact of their policies and practices on the environment may face greater financial risks than those that don’t.
This has pushed ESG investments into the mainstream.
Does ESG investing deliver?
ESG investments are now taking centre stage, but can they deliver?
Whereas once companies that incorporated environmental goals into their growth strategies tended to perform less well, they now have the potential to outperform their peers.
In 2019, the S&P 500 Index launched an ESG version in response to investor demand. By Q4 2020, this was outperforming the S&P 500.
In addition, a meta-study of over 1000 research papers published in 2021 analysed data over a five-year period from 2015 to 2020. A positive link was established between ESG performance and operational efficiencies, stock performance and lower cost of capital. The report states that ‘business strategy focused on material ESG issues is synonymous with high-quality management teams and improved returns.’
Invest for change
As individuals it is easy to feel powerless in the face of the climate change challenges that the world is facing. However, you can be an agent for change by moving your money into sustainable investments. The fact that thousands of investors have all done the same has been a catalyst for companies to up their environmental game and consider all the different stakeholders involved in their business, not solely shareholders.
If you want to divest your investments away from fossil fuels or high polluters, you no longer have to compromise your principles to achieve a return on a par with non-ESG funds. Profitability and planet-friendly can now go hand in hand.
Infinity’s investment management partner, Evelyn, has been at the forefront of the ESG investing revolution. The company has signed up to the United Nations Principles for Responsible Investing (UN PRI) and the UK Stewardship Code and is a member of Climate Action 100+, the world’s largest investor engagement initiative on climate change.
Our financial planners work closely with Evelyn to ensure that your investment portfolio meets your unique needs in terms of both return and your responsible investing criteria.
Make 2023 the year you become an actor for change without sacrificing return.
Contact us to discuss building a portfolio aligned with your principles.
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