Should you consider ESG investing?

Date Published: 09/03/2021 11:07

In an article that first appeared in the Yorkshire Post, Jillian Thomas asks if we should put our money where our mouth is when it comes to climate change. 

Sir David Attenborough told the UN Security Council that we are already too late to stop climate change. We can only limit its impact and stop it going any further.

You only have to look at the wildfires raging around the world or see the devastating effects of flooding to realise his stark warning seems scarily true.

As someone who works in the world of finance, you may think this is a million miles away from me and something for others to worry about. But like all of us – I do worry about such things, and so do more and more of my clients.

It feels like an increasing number of people are concerned about the environment and other ethical issues, like modern-day slavery and working conditions. And this has led to the growth of what is known as ESG, or Environmental, Social and Governance, investing. It literally means those who want to, can put their money where their mouth is.

Traditionally we have looked at our clients’ attitudes to risk and their future plans.  We have looked at where we can get the best return on investment. We still do that, but more often we are asked to take their values into account too. After all, an investment is financial support for a company or organisation, and for many investing in something that doesn’t match your values just doesn’t feel right.

If each of us makes a small change in our investments, together we have a bigger influence and we can effect change in these big corporations.

ESG investments are not a passing fad, they are becoming mainstream. The investment funds are generally doing well. This is for various reasons, including better technology. For example, environmentally-friendly energy production is better and cheaper than it was. Another reason is that more governments want a cleaner and greener world, thus laws and regulations are pushing companies down that route; and thirdly people are increasingly wanting their money to be used not only to make money, but also to make the world a better place – or at the very least, not make it worse.

There are various levels of ethical investment. You may just want to avoid investing in businesses that you think do harm, for example tobacco companies or arms manufacturers. You may want to go one step further and invest in funds that actually do good, such as companies that treat their workforce well or are reducing their emissions. Or you may want to invest in companies that have a positive impact upon the planet, for example they generate renewable energy or address health care needs.

If you think that ultimately the global economy does depend on how well we look after the world’s resources, it makes sense financially, as well as morally, to think about where you put your hard-earned cash.

All this comes with potential wealth warnings. By excluding some sectors and focusing on others, you are limiting where you can invest, and that can bring more risk. If you choose to invest in niche areas, you could be increasing the risk even further.

But there is a wide range of choice out there. It isn’t just small, specialist companies and specialist funds that are turning green. Many of the big players, from tobacco companies pledging to switch millions of smokers to smoke-free products to oil companies pledging net-zero emissions, are part of the ESG revolution.

You don’t have to have the influence of Sir Attenborough or the youth and energy of Greta Thunberg to do your bit to change the world. As investors we can think about where we put our money to make ESG more than just a passing fashion. After all the survival of the planet depends on us taking the long-term view.

No individual investment advice is given, nor intended to be given in this article and liability will be accepted in respect of any action you may take as a result of reading this article. If you are unsure you are urged to take independent investment advice.

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