Some of the content presented on our website has been generated with the assistance of Artificial Intelligence (AI). We ensure that all AI-generated content meets our high standards for accuracy and relevance.
There is no doubt individuals are becoming more focused on wider issues in society, like, climate change, pollution and the social impact actions can have on people and communities. This has led to an increasing level of interest regarding Environmental, Social and Governance (ESG) investment.
Mark Carney, former Bank of England Governor, previously spoke to Money Marketing and highlighted how:
“clients are increasingly focused on this question, so, how is their money being invested?”
For those interested in this area, there are many funds available, containing equities and bonds which meet stringent tests related to ESG criteria.
What does ESG stand for?
- The E is about the environment – Do companies take into account issues such as climate change or energy consumption and how their actions impact the world around us.
- The S is for social – How does a company deal with its relationships with staff, suppliers and other stakeholders. Do they work with suppliers who have the same values? Do they have a high regard for their employees’ well-being?
- The G is for governance – How is the company managed? Is there a culture of transparency, accountability and trust, with open communication? Do they follow all the legal and accounting requirements?
ESG investing aims to create a return for investors, by analysing all of these factors, alongside the more traditional financial analysis.
Historically, investments that were known as ethical funds used to focus on negative screening, therefore avoiding companies in certain areas such as tobacco, gambling and weapons.
ESG investing takes this a step further and looks for companies that have a positive impact and influence on society.
People like the idea of making investments, which are a driving force for change, for themselves, their beneficiaries and the world we live in. This has led to an increase in the number of options available to investors.
During the extraordinary market conditions we experienced during the early months of the pandemic, many retail investors reacted by withdrawing money. However, according to data from The Investment Association:
“Responsible investment funds bucked the trend, as savers invested £113 million into funds with a focus on ESG. As we look to rebuild the economy and discussion around social good and the relationship between business and society gathers pace, there will be a growing interest in the role this sector can play”
ESG investing – assessing the level of risk
If you are interested in an ESG investment, it is important to still be mindful of the level of risk you are prepared to take and to ensure you are still diversifying your holdings to make sure you don’t put ‘all your eggs in one basket’.
As with all investments, there are risks involved and you should always seek financial advice from an expert before making any decisions.
How Nelsons can help
Zoe Till is a Senior Associate and Chartered Financial Planner in our expert Investment Management team.
For further advice in relation to the subjects discussed in this article, please get in touch with Zoe or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.
Contact us