We are all becoming increasingly aware of the effects of climate change and its impact on the planet and society and take small steps to do our part for the environment and society. We can make choices when investing too, by opting for companies which don’t contribute to climate change, inequality etc and have strategies to control the risk – responsible investing.
It can be confusing, not least because of the different terminology used, but don’t let this put you off, they all share a common philosophy and your adviser will guide you through it.
ESG definitions
ESG investing prioritises financial returns alongside a company’s impact on the environment, its stakeholders and society.
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Environmental – The impact of a company’s activities on the environment: carbon footprint, greenhouse gas emissions, renewable energy usage, sustainable supply chains etc.
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Social – A company’s impact on its employees, customers, suppliers and local community: how employees are treated, racial diversity, LGBTQ+ equality, inclusion programmes etc.
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Governance – The way companies are run: how management drives positive change and its business ethics.
Increasing popularity
Interest in ESG/responsible investment is growing. Investors are placing greater emphasis on the environmental and social impact of their investments and seeking to manage exposure to ESG factors while generating sustainable long-term returns.
Investing responsibly doesn’t mean that you have to sacrifice returns. You can take a philanthropic approach if you wish, by investing in companies that prioritise social impact over profitability. But at the other end of the spectrum there are investments which put profit over impact. In the middle we have ‘profit with purpose’, where you invest with the intention of generating positive social and environmental impact alongside a financial return – often called ‘impact investing’ – which is emerging as a resilient and future-proof choice.
Investment planning
What does all this mean for private investors? You don’t need to spend hours researching a company’s ESG track record, or comparing its share price, to work out which to invest in. As with other capital investments, you can buy funds which invest in highly rated companies, which also reduces risk by providing more diversification.
Responsible investing does not have to involve more work on your part, and you can invest as you normally would, without compromising returns or your risk weightings – but with the difference being which companies benefit from your investment capital. You can use a financial advisory company that incorporates responsible investing within its advisory services.
This article should not be construed as providing any personalised investment advice. The value of investments can fall as well as rise.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
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