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ESG investing
Environmental, social and governance (ESG) investing means aligning your investment choices in a way that matches your values. With decades of experience managing bespoke ethical portfolios, we have the know-how to help you control how your money interacts with the wider world.
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What is ESG investing?
ESG investing is the practice of using environmental, social and governance criteria to select investments, alongside traditional financial metrics. Environmental factors examine a company’s impact on the natural world, social factors focus on its impact on people and governance factors look at how the company is run.
In essence, the aim of ESG investing is to limit exposure to environmental, social and governance risks and negative impacts. Additionally, ESG investing lets investors harmonise their ethical principles with the pursuit of financial returns.
It requires significant expertise, time and effort to construct and maintain an investment portfolio that supports your financial goals. With more than 20 years’ experience managing ESG and responsible investment portfolios, we know how to design a strategy that helps to shield you from environmental, social and governance risks, aims to maximise your long-term prospects and aligns with your personal values.
Enquire now for tailored portfolios that reflect your values and support your goals
Why is ESG important?
Lower risks
Companies with poor environmental, social and governance practices are exposed to reputational damage, reduced profits and stock price volatility. So, using ESG criteria to screen them out can protect your portfolio from those types of risks. However, it’s important to note that ESG investments are still subject to traditional risk exposures related to market volatility. Therefore, enhancing returns shouldn’t be the primary motivator for ESG investing.
Long-term prospects
Avoiding scandalous or poorly run companies may help your portfolio perform better over the long-term. There’s increasing evidence suggesting that businesses that embrace ESG can potentially outperform their peers. For example, in 2020 S&P Global Ratings carried out analysis of more than 2,000 studies on the impact of considering ESG factors in investing, and more than 90% found that an ESG focus meant that they were better positioned to achieve average or higher-than-average returns. However, because this is a relatively young investment strategy area concrete conclusions about its expected returns cannot be drawn. This type of investment can fall in value as well as rise.
Better ethical alignment
Financial data alone can’t tell you whether you’re investing in companies with practices that contradict your personal beliefs. But ESG frameworks give investors a way to align their investments with their ethical values.
Challenges with ESG investing
Portfolio restrictions
Excluding companies and even whole industries based on strict ESG criteria can limit the potential of your portfolio, unless handled skilfully. In some cases, choosing only ESG investments could result in missed growth opportunities, as well as reduced diversification. Working towards your financial goals under these limitations requires skilful handling.
Greenwashing
Greenwashing is one of the biggest challenges in the world of environmental, social and governance investing. It is a term used to describe untrue or misleading statements made about the environmental performance or impact of a business, product or service, and can include misleading statements made in marketing materials and communications. Because of this practice, branding and marketing aren’t enough to gauge a company’s ESG performance.
Low standardisation
There are many different frameworks that are used to assess ESG performance. Because there’s no universal framework, it requires specialist expertise to investigate how legitimate a company’s ESG credentials are.
Limited disclosure
Companies are increasingly making ESG-related disclosures in annual reports and standalone sustainability reports. But it isn’t mandatory to include ESG metrics in financial statements, meaning companies may not disclose the information you need to easily conduct an ESG assessment. Our in-house researchers have the skills and experience to gather the information needed to make an accurate assessment of a company’s performance against ESG-related criteria.
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ESG investing FAQs
An ESG score is a quantitative evaluation of a company’s performance on environmental, social, and governance factors, allowing investors, analysts, and other stakeholders to gauge the ESG-related risks and opportunities the company faces. The aim behind the scores is to provide a standardised way of measuring and comparing the ESG performance of different companies.
Specific rating methods and criteria vary, but ESG scores are often expressed on a numerical scale or in percentile rankings. This allows for comparisons of different companies within the same rating system. Raters can use a combination of publicly available information, company disclosures and direct engagement with companies to generate ESG scores.
Numerous organisations and rating agencies provide ESG scores based on various methodologies and criteria. It’s important to note that there’s no universal standard for calculating ESG scores – different bodies use different methodologies. For investors, this means you need to investigate further to determine whether a company truly aligns with your values.
ESG reporting refers to a company’s disclosure of data regarding its environmental, social and governance activities. Companies may provide this information to stakeholders to transparently communicate their commitment to ESG initiatives. This helps investors assess the company’s performance and make more informed decisions that align with their values.
ESG reporting can take various forms, including standalone sustainability reports, integrated annual reports or inclusion of ESG information in regulatory filings. Common frameworks used to guide ESG reporting include the Global Report Initiative (GRI) Standards and the International Sustainability Standards Board (SASB) Standards.
Environmental, social and governance investing and impact investing both align investment decisions with ethical considerations, but their focuses and implementation are different.
ESG investing involves mitigating risk by balancing environmental, social and governance considerations with traditional financial metrics. On the other hand, impact investing seeks primarily to generate positive, measurable social and environmental outcomes, alongside financial returns.
Let our ESG investment experts help
If you’re considering ESG investing, you might find yourself overwhelmed by the vast range of investments and rating systems in the ESG landscape. Or you might be discouraged by accusations of greenwashing or criticisms against limiting the variety of investments that can be included in a portfolio.
The truth is that these challenges exist, and they can make ESG investments difficult for individual investors to successfully navigate. It takes considerable technical know-how and experience to get this approach right – which is exactly where our ESG experts can help. Contact us to discuss how our services could benefit you.
Why invest in an ESG portfolio with ESG Markets?
Actively managed portfolios: We’ll seek to understand your situation on an individual basis, then craft an ESG investment portfolio that aligns with your needs. Then we’ll continue to monitor and review your portfolio.
Robust standards: Your portfolio will be monitored by our investment risk team and be subject to ongoing ethical and sustainability screening, ensuring your plan matches your financial and ESG criteria.
Timely reporting: We understand how important communication is, which is why there is ongoing communication and support from your investment manager and their team. As well the regular portfolio valuations we send you, you can request one at any time through a secure online portal 24/7.
Award-winning approach: Our industry-leading investments management service has earned a wide range of awards, including the Silver ESG Investment Company of the Year at the Citywealth Magic Circle Awards. Our people also receive plenty of accolades, such as Elizabeth Haigh’s ‘Outstanding Contribution to ESG Investment’ award at the ESG Clarity Awards 2023 and Nicola Day’s ‘Sustainable and ESG Woman of the Year’ award at the Investment Week Women in Investment Awards 2023.
Responsible: We demonstrate our own dedication to environmental, social and governance principles through our proactive engagement plans and several partnerships with other members of the responsible investment community, as well as our commitment to achieve net zero by 2040.
Access ESG investments with ESG Markets
At ESG Markets, we have the expertise to make your money work for what you believe in. Tell us your goals and what environmental, social and governance issues matter most to you, and we’ll craft a bespoke investment portfolio that aims to maximise your potential. Fill in our enquiry form if you’d like to find out more, and we’ll get in touch as soon as possible.
