BLACKFORDS: ESG/RESPONSIBLE INVESTMENTS
The world feels a smaller place these days. Our smart devices and internet connectivity mean that we now have access to pretty much all of the information that has ever been put into the public domain. It also means we can access real-time information on companies, corporations and global politics anytime, anywhere, keeping a track on news, issues, updates and challenges impacting our lives, and the markets.
For existing investors, or someone who is considering starting a portfolio, this has changed the landscape for investing in recent years.
One growing trend in particular is that of investors adapting their portfolios and the companies they invest in to align more with their own personal values and causes. This is commonly referred to as ‘ESG investing’ or ‘responsible investing’. But what is this more precisely?
ESG stands for environmental, social, and governance.
Environmental criteria establish how a company’ activities protect and nurture the environment. For example does it measure its carbon footprint, or perhaps utilise renewable energy.
Social covers how a company manages its relationships with employees, suppliers, customers, and the broader community. Organisations can play a huge role in generatingh fairness within society. For example they might invest in new equality opportunities, have policies and measures in place to protect people working in their supply chain, and ensure their customers’ data is secure.
Governance involves a company’s leadership, executive pay, audits and ‘boardroom behaviour’.
A recent survey by wealth managers Charles Stanley found that 94% of advisers had stated that the topic of ESG investing had come up with clients in the past 12 months, with nearly half the time the topic having been prompted by clients themselves. Additionally ESG-focused investments are on track to account for more than a third of total industry assets in the next few years.
Funds also continue to flow into this area, with globally listed exchange-traded funds focused on environmental, social and governance (ESG) strategies gathering net inflows of $7.6bn during February.
As the stats indicate, investors are increasingly eager to align their portfolios with those companies that making it an area of growth with positive effects on society and the environment. This can be because of the investor’s own personal values.
However investors are also attracted to ESG investments because those companies who are very advanced in ESG matters may also offer better returns and lower risk.
For example, a company that is well-governed committed to sustainability may have greater prospects for long-term stability, socially responsible companies may attract the best talent, and well-governed companies are less prone to corruption and damaging scandals.
Putting ESG measures into practice can also help a company attract talent and new customers, as well as lower costs. If a company embraces ESG then this can enhance their reputation and perhaps the reduced costs associated with recruitment (through increased staff retention) and marketing (having an ‘ethical’ reputation can enhance the brand).
If you are keen to explore the potential for ESG/responsible investing, our professional team at Blackfords will offer independent expert advice regarding the right investment strategy for you. Our role is to maximise your investment returns while ensuring they are in line with your specific goals and objectives.
You can find us in Douglas, Ramsey and Port Erin and we can offer you a free 1 hour no obligation consultation.