Issues such as climate change, pollution and renewable energy are increasingly becoming headline news making Environmental, Social and Governance (ESG) investing at the forefront of many investor’s minds. These investors want to be sure that their money is being put to use in a way which aligns with their personal values.
Whilst now very much in the mainstream, ESG investing is still a relatively young practice. Here we answers seven of the most commonly asked questions about ESG investing – including some tips for those who are just starting out.
1. What is ESG investing?
ESG investing is an investment approach. It posits that taking account of relevant and material factors across the environment, society, and governance will improve the investment decision making process. You can also deploy ESG investing to ensure your lifestyle and values are reflected in your investments and even use your investments to help create a better future for people and the planet.
2. Why is ESG investing important?
ESG investing is important for two reasons. Firstly, we believe it is essential to take account of relevant and material sustainability factors when investing – it’s your toolkit to better your risk and identify underappreciated sources of growth. Second, our investments reflect who we are, and our investments have real-world consequences. ESG investing is important as it can align our portfolios – and their consequences – with our, and our family’s values. You can read more about the importance of ESG investments by clicking here.
3. What makes an ESG investment ?
At its core, ESG investing is about ensuring that all relevant stakeholders – from employees, to regulators, to the environment and communities in which a business operates - are respected. When this occurs, it is believed a business typically benefits from faster growth, better pricing, and finds solutions that create “wins-wins”. ESG investing is at its best when it takes a principled based approach, considering investments with a fresh perspective and additional information in order to make better investment decisions, not when it’s implemented as a series of rules or check-boxes.
4. What are some tips for beginners?
The best tip is to picture what you think the future will look like, or even what you want it to look like. At Brown Shipley as part of the Quintet group, we would be confident that you would agree with us - the dominant technologies and services of the future are going to be sustainable: far less carbon intensive, more flexible and agile business models, with greater diversity and empowerment for employees through technologies such as remote working. The stock and bond markets are a reflection of the real-economy, so consider what the future looks like and invest accordingly.
Another great approach is to imagine you are the CEO of a large company and to think about how you would like it to be run in order to be as profitable as possible. Would you want to have very productive employees? Suppliers who collaborate with your innovations? Great business ideas being generated by your diverse staff? Do your products and services help people find solutions for major problems? Or… is your business beset by regulatory and accounting issues? Are your employees unhealthy and unhappy? And, is your business unwanted by the communities in which it operates? When you consider on a single company basis what would be a great organisation to work for and with, it becomes easy to extend the analysis to your entire portfolio and embrace ESG investing.