There’s a huge amount of talk about the environment. This is in every aspect of our lives from how we heat our homes to the food we eat and the packaging it comes in. We are increasingly conscious of how the decisions we make and the actions we take impact the world around us. An environmental focus has long been considered by investors. However, the now widely known ESG investing goes far beyond being purely about “Green” funds. Here is our 1,2,3 of ESG or the What you need to know guide!
1. What is ESG?
The world of investments and investment terms can be confusing. A term that we should all know and understand is ESG. ESG investing or Environmental, Social and Governance investing, put simply, is a type of investment approach that uses these 3 criteria to assess potential companies that they may wish to invest in. As a philosophy, it has become increasingly popular over the past couple of years. This is largely down to the fact that people are increasingly looking to invest in options that are akin to where their values lie.
ESG investing is also referred to as sustainable or socially responsible investing. It is broader than the existing ethical investment approach as it doesn’t just take into account environmental factors. It’s about aligning people, politics and the planet with profit. . It underpins a responsible investment approach, and allows investors to better manage risk and generate sustainable, long-term returns. This short video explains it in simple terms.
2. Why consider ESG?
Demand for ESG investments has gained significant momentum. Recent research has pointed to over two-thirds of consumers surveyed believing that it is important to consider ESG factors before investing. This rises to over 70% for those with a pension with many of these people stating the reasons are to do with aligning their actions with their beliefs. Many companies that adhere to ESG criteria have been shown to provide better long-term returns to investors.
This simply means that on an individual basis we can do good through our investment choices. The Covid-19 pandemic has accelerated this thinking. Very few companies have benefited from the crisis however the way they reacted to it and emerge from it could largely dictate their future. Transparency is a crucial part of this. How a company responds in a crisis tells you a lot about its motivation and whether it has a moral compass that guides its purpose.
As an emerging model there has been some critique, saying ESG investments are too passive and not delivering on returns. So far research has shown positive and consistent returns when ESG is part of a multi-asset portfolio. With investing a basic tip is never to put all your eggs in one basket – diversify.
3. What’s our role?
At Quintas Wealth Management we believe taking a holistic approach to your portfolio will allow you to benefit from a range of returns. ESG should be a part of your strategy as diversification will always be key to successful investing. We actively seek out good opportunities in the ESG space for our clients. As shareholders continue to see the potential for improved returns by adopting ESG policies there will be a wider variety of choices for investors.
Earlier this year, the Sustainable Finance Disclosure Regulation (“SFDR”) came into effect. The SFDR was introduced by the European Commission and sets out to harmonise rules on transparency and aims to include environmental, social and governance (ESG) “sustainability” considerations and risks in the decision-making process of investors and asset managers in a consistent manner across the EU financial services sector.
This allows you as an investor to have access to sustainability-related information to enable you to compare financial products and to make informed investment decisions about ESG products. Our role is to advice you on the products available for your particular investment decision and guide you through the choices you need to make.
Our approach has always been to develop a relationship with our clients so that we are in the best position to advise them. We take into account your investment knowledge and experience, your risk tolerance as well as your goals an objectives. But we also now try to determine your attitude to ESG investing as part of our overall financial review so we can outline the best options for you.
22 September 2021