The Press and Journal (Inverness, Highlands, and Islands)
Increased awareness now shaping the way we invest
ESG investing is attracting growing numbers, says Martyn Paterson, financial planner at AAB Wealth
World Environment Day, World Oceans Day, National Bike Week and World Day to Combat Desertification and Drought are all being marked this month.
What can they teach us about how we should be investing?
Environmental issues are increasingly big news, with Greta Thunberg, Sir David Attenborough and Extinction Rebellion, among others, pushing climate change and pollution into the headlines.
Increased awareness affects everything, from how we shop to how we recycle and it has an impact on how we invest too.
It was reported by FT Adviser back in 2018 that 52% of millennial investors were already investing sustainably.
But what investing?
ESG investing means basing your investment decisions on environmental, social and governance factors.
It could mean avoiding companies engaged in gambling, or the sale of tobacco or alcohol.
Conversely, it may mean actively seeking out those companies known is
ESG to be environmentally responsible.
Environmental investing means choosing where to place your money based on factors like a firm’s response to climate change.
A firm with an awareness of its environmental impact and an understanding of sustainability issues is more likely to attract ESG investors.
It is not just environmental issues that govern a company’s ESG credentials.
Social factors will also be a consideration.
These could include staff working conditions, fair wages and how a company situates itself within its community.
Governance concerns the internal practices of a company. Are shareholders elected democratically? Is accounting transparent? Are practices of the business legal as well as ethical?
We all do our bit for the environment by recycling, turning off lights and cutting back on plastic, for example, but still invest for one main reason – returns.
ESG was once thought to mean putting your principles before your desire to make money but that doesn’t have to be the case.
A UK Investor Magazine report predicted 173% growth and a market worth £48 billion by 2027.
It is growth based on changing public perceptions around sustainability but also on investment returns.
Morningstar recently reported 41 out of 56 of its ESG indices had outperformed its non-ESG equivalents since inception.
Elsewhere, sustainable banking firm Triodos said its Global Equities Impact Fund returned 78.3% over the five years to September 2019.
After celebrating World Environment Day on June 5, most of us acknowledge the responsibility we all have for the planet and each other.
Increased awareness of ESG issues has brought a rise in ethical investment.
It’s an opportunity to place your money where your beliefs are, while also achieving potentially great returns.