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.