In recent times there has been an incredible shift in public attitude towards being more sustainable – this has been accelerated by COVID-19 in the last 18 months too. Interestingly, this has led to a sharp rise in responsible or ESG (environmental, social and corporate governance) investing that allows investors to know that they are investing in good causes while also seeing great returns.
With that said, investors who want to put their money where their values are should look at the company’s ESG metrics so that they know they are supporting one that shares their beliefs and goal to impact positive change in the world.
Appetite for ESG
Experts at Saunderson House conducted a study in financial wellbeing which revealed that there is a moral appetite for ESG investing with two-thirds of respondents believing that ESG investments should form part of their investment portfolio. On top of this, 49% believed that they had a responsibility to use their wealth in a responsible way (compared to 21% that disagreed) while 59% agreed that companies that have strong ESG values were more likely to be successful.
People Wanting to Make a Difference
Many of the global issues and suffering seen around the world has been shocking in recent times, especially when you consider the hardships endured by communities as a result of the pandemic. Many more investors are now investing responsibly, especially in the 18 to 34-year-old range where 83% were interested in responsible investing and 50% currently owned RI investments.
That being said, people who want to invest responsibly can look at factors such as water usage and waste management. These are factors that show how efficient companies are in managing their resources and if they care about the environment around them.
Under the social aspect, if you are particular about how companies treat and value their employees and clients, how they put their team member’s and clients’ welfare front and center and even the overall management of the workforce are the things you need to check under the metrics.
Governance is another factor that will tell you how well the company is run, by looking at its share class structure and government structure. Awards and accolades can come into play in this aspect. Overall, ESG will help you assess a company without looking at its balance sheet but instead at how it impacts the broader society at large.
Of course, for many people, it’s a case of varying opinions. Some people may favor the environment over governance or social. That’s why, when you consider this kind of investment, you need to assess your own values first so you can align them better with your prospect.
Sustainable Investments Performing Well
In addition to the ethical standpoint that investors feel that they should be using their money to do good in the world, there is also the reason that sustainable investments are performing well so it can make a lot of sense financially. In order to make a positive difference to the world, a lot of money has been put into ESG investments that has seen these companies find high levels of success and deliver significant returns for investors.
Outperforming Traditional Funds
In fact, The Guardian reported in 2020 that environmentally focused investing was outperforming traditional funds and this will always catch the attention of investors. Vanguard – one of the world’s biggest fund managers – launched two ethical index funds aimed at UK investors last summer and performance has been strong even during COVID-19 (when many funds have fluctuated heavily).
Barriers
In terms of barriers for ESG investing, the key issues are knowledge, understanding and access. Many investors like the idea of ESG investing in terms of ethics and returns, but many do not know how to go about finding the right investments. This is where financial planning with the help of an advisor will be worthwhile as they can help you to find the right investments that will help you to make positive change while also helping you to achieve your investment goals.
ESG investing is on the rise and it is easy to see why when it can help investors to do good in the world while also beating traditional funds. Global attitudes are changing and as an investor, you always need to be aware of these changes.
