The letters ‘ESG” are shorthand for Environmental, Social and Governance.
It basically means investment in businesses and funds that are ethical and therefore investing in them adds a ‘feelgood’ factor that isn’t there investing in more conventional platforms.
Individually ESG stands for:
Environmental: Are products created sustainable? Does the company offset greenhouse gas emissions? Is recycling a major and transparent part of their business model?
Social: Is their visible contact with the community company serves or indeed within its own business? Diversity, human rights in terms of hiring and work policy – are these clearly in evidence?
Governance: In other words, corporate governance: is the company’s board diverse? Is the payment structure for board members reasonable? Is their inter action with shareholders where shareholders are heard?
If green culture, sustainability and ecology agendas matter for you then ethical investing is a way you can get your investments to align with your values. This as opposed to environmentally damaging businesses like oil or mining (though some of them may well be working to offset the environmental damage they cause).
Unsurprisingly, there has been a spike in the number of funds available that have an ESG remit. Over $1tn in funds are globally tied up in what can be described as ‘ethical investments’ and for Europe ESG funds are close to 33% of all sales in the sector. There are now close to 3,000 ethical funds on the market worldwide.
In fact, the UK Government has just announced details of its own Green Bonds.
What is ethical is subjective. Your opinion many differ from your neighbours’. But the core values of trying to protect the planet, sustainable solutions and a broad consensus of considered investing where return is not necessarily the core determinant.
Having said that, there is research to suggest that ethical investing is delivering returns on a par with non-ethical. Morningstar Data found 24 out of 26 ESG funds outperforming so-called conventional funds in the first quarter of 2020.
The actual process of identifying individual stocks and businesses that correspond to your values is time-consuming and requires you to be clear about the values you are looking for and the transparency with which individual business conduct themselves.
If you need help in terms of ESG or any type of investment just contact us at: email@example.com