We currently live in a time where we face many global challenges such as climate change and social inequality. These concerns might have sparked significant questions about where your money is invested. It’s only natural to feel curious about where exactly your money is invested and whether it contributes to the betterment of our planet and future generations.
So you might be wondering – what exactly is an ESG investment?
ESG stands for Environmental, Social and Governance. It is a type of investing strategy where there is equal focus on these effects alongside the sheer financial return. It’s a path chosen by those who wish to make a difference with their investments. Imagine steering your away from the traditional realms of oil and gas and instead directing your money towards companies dedicated to constructing wind turbines or harnessing the potential of hydroelectric power. Imagine avoiding giving funding to companies exploiting their workers with low pay, insecurity and poor conditions and instead investing in those that invest in their people. This is the power of what an ESG approach has to offer.
Who is ESG investing for?
ESG investing is aimed towards anyone who wants to invest their money with the aim of making a difference as well as generating a financial return.
Still, interested investors should be willing to tolerate some deviations from the returns delivered by conventional investment funds, particularly in the short-term. For example, during periods of turbulence in global affairs it may well be the case that the price of oil rises, or weapons manufacturers look set to benefit. ESG investments may lag somewhat at these times.
However, over longer time periods it is worth noting that there tends to be a strong correlation between companies with strong ratings for their ESG practices and successful companies with strong brands, innovative products and a focus on the future. Therefore, while there can be no guarantees, there is no reason why an ESG investment strategy should deliver lower returns over the long-term. They could even be higher.
What you should look for in an ESG investment manager?
ESG investing can be a complex area: there are a number of different approaches, ratings bodies, exclusion criteria, and so on.
Absolutely crucial to any ESG investment however is to ensure that your financial adviser (or the investment managers they use) perform their own research through in-depth discussions with investment companies. They should aim to comprehend what a fund manager’s ESG objectives are and how they get implemented into the investment selection process.
They should also move beyond surface-level ratings. It can be useful to recognise that there may be ESG value in funds or companies that do not appear at first glance to be instant sustainability champions. Funds with investment objectives geared towards investing in enablers of change might not be the very best in the sustainability field just yet, but they’re on the path to get there. Improvements in these companies will form the bridge to the sustainable future we all strive for.
When undertaking ESG investments at Furnley House, these approaches and considerations enable us to stay true to our traditional values but with a forward-thinking, considerate approach.
In the dynamic world of ESG investing, your values and your investments can truly align. We’re here to guide you through this exciting journey, where making a financial impact and a positive change in the world can go hand in hand.
Get in touch with a Furnley House financial adviser today if you would like to discuss how your investment portfolio could do good while doing well.