With investors increasingly concerned about the potential negative effects of certain business practices, many individuals and institutions are asking how they can align their environmental views and personal values with their investment decisions.
In this blog, we will be introducing the increasingly popular ESG investing, what it means, how it started and how you could invest in a way that creates meaningful global change.
What are ESG criteria?
‘ESG’ is an acronym that describes a method of screening of products or company practices to determine how well they perform on Environmental, Social and Governance levels. It provides a guide to work towards if a provider wishes to appeal to the more socially and environmentally conscious consumer.
What does ESG stand for?
Environmental – Conservation of the natural world
Including climate change and carbon emissions; Air and water pollution; Biodiversity; Deforestation; Energy efficiency; Waste management; Water scarcity.
Social – Consideration of people and relationships
Including customer satisfaction; Data protection and privacy; Gender and diversity; Employee engagement; Community relations; Human rights; Labour standards.
Governance – Standards for running a company
Including board composition; Audit committee structure; Bribery and corruption; Executive compensation; Lobbying; Political contributions; Whistleblower schemes.
When and why did ESG Investing begin?
ESG investing has its roots in what was known as ‘socially responsible investing’, which started to emerge in the 1960s. Many participating in financial markets wanted to avoid financially supporting certain industries such as those producing weapons, or political movements such as the apartheid in South Africa.
This screening process was important for investors who wanted to consider more than just the return on their investment. ESG Investing now encompasses contemporary issues such as climate change and global equality.
Why ESG Investing is on the rise
Increasingly, investors are not only interested in the financial outcomes of their investments but are also interested in the role their assets can have in supporting positive global change and the longevity of our planet. Scientists, industries, governments, and society in general are now looking for ways to manage the trade-offs between improving our standard of living in the short and medium-term and, in the long term, avoiding environmental damage that may inhibit humanity’s standard of living.
The development of our capacity to track indices and performance through data has led to an explosion of ESG investment products offered to the market.
While investing in companies with sustainable business practices is worthy on its own, there’s a long-held misconception that doing so comes with a price of lower investment returns when this is not necessarily the case. ESG investing is gaining momentum as research is increasingly showing that this method of investing can generate competitive investment returns and help investors feel good about the stocks they own.
“It’s crazy that our banks and our pensions are investing in fossil fuels when these are the very things that are jeopardising the future that we are saving for.”
[DAVID AT TENBOROUGH, A L IFE ON OUR PLANET ]
Invest in an ESG Portfolio with Highwood
Meeting your investment goals while satisfying your values around sustainability need not be mutually exclusive. If you would like to find out more about ESG Investing with Highwood please get in touch:
T: 01923 479 850 | E: ENQUIRIES@HIGHWOOD.CO.UK
Returns from investments such as this can fall as well as rise and you may not get back the amount you invested.