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Talking to clients about
ESG investing

29 April 2018

There is a growing school of thought that investing in companies with an emphasis on sustainability and making a positive ethical impact, can also help drive sustainable, long-term returns.

More than two thirds of institutional investors (i.e. pension funds) surveyed by State Street Global Advisors (SSGA) in 2017 said the integration of environmental, social and governance (ESG) measures into their decision-making had ‘significantly improved returns’.

According to SSGA, it was now widely appreciated that good governance in areas such as carbon footprint and workforce engagement “creates better quality companies that provide better performance over the long-term” 1.

Demand for ESG investing is rising

More than £19bn was invested in UK green and ethical funds by mid-2018, according to the most recent figures from the EIRIS Foundation, up from £16bn the previous year 2. Peter Webster, CEO of the Foundation, noted that "Numerous sources, from fund houses to individual advisers” were reporting greater interest from investors in what the ethical market offers.

Younger generations in particular appear eager to put their money to work in a way that can provide a degree of future-proofing. The number of investors making sustainable investments increased by two thirds between 2015 and 2017, according to the Impact Investing Report published by Barclays in July 2018. It also found that, in 2017, over 40% of respondents under 40 had made an impact investment 3.

Helping clients to navigate complexity

There are some challenges though for those interested in ESG investing. The sheer proliferation of different approaches being taken can make it difficult to work out exactly what different funds do and don’t do. And whether that aligns to a client’s objectives.

Some funds that describe themselves as ethical or socially-responsible will contain companies that investors may not immediately think of as being particularly ethical. But ‘mainstream’ businesses are increasingly putting ESG principles at the heart of their decision making.

So it’s an area where a bit of homework can be useful, and the guidance of a good financial adviser or wealth manager invaluable. Indeed, almost seven in 10 UK investors surveyed for Good Money Week 2018 said they would welcome a law requiring financial advisers to ask clients if they wanted to exclude specific sectors or companies 4.

An opportunity for you?

Demand for investing in a way that makes the world a better place, or at least which aims to ensure it’s more sustainable, looks set to keep on growing.

With each natural disaster, every new detail about the pace of climate change and every study underlining how our investments can impact on the world around us, investors seem more likely to want to know that their money is being invested in a way that they feel comfortable with.

If you choose to build a specialty in this area you may increasingly find yourself at a competitive advantage.

Important information

Please remember the value of your clients investments and any income from them can go down as well as up and your client may get back less than the amount they originally invested.

1 SSGA - Performing for the future - 2017 (pages 5-6)

2 EIRIS Foundation – Strong growth for good money in 2018 – 27 September 2018

3 Barclays – Investor motivations for impact: a behavioural examination – July 2018 (page 4)

4 Good Money Week - New Good Money Week/YouGov poll results announced - 31 October 2018

Support for your clients

You may find our Introduction to ESG investing guide useful as a resource to use with clients who are interested in this area. It’s aimed at helping them, with your support, navigate their way through the jargon and complexity to build an understanding of how they can invest in a way that also makes a positive social and environmental impact.

Download the guide