Even though you might have invested before, there is a chance that you might be new to ESG investing. Given its rising popularity over the past couple of years, we wanted to share some of the most important factors surrounding this type of investing.
What is ESG?
ESG stands for Environmental, Social, and Governance. It is a type of investing that some often refer to as mission-related investing, socially responsible investing, sustainable investing, etc.
The goal of ESG investment doesn’t differ from the end goal of classic investing, which is gains and profit. That remains firmly in its sight, and ESG investors, same as any other investors, greatly care about their returns. However, unlike most other forms of investing, ESG investors also greatly care about the impact of their investment on the environment, the world or the communities we live in.
What should people look for when doing ESG investing?
Here are the top criteria investors use to evaluate businesses for ESG investing:
- Social: What’s the social impact of the company in the community and the company? It often includes factors such as racial diversity, equality, hiring practices, inclusion programs, etc.
- Environment: This includes the overall impact of the company on the environment. ESG investors greatly care about the carbon footprint of the company, removing toxic chemicals part of their manufacturing process, the use of renewable sources of energy, improving the sustainability of their supply chain, etc.
- Governance: This is about how the company’s management and board push for positive change. That includes everything from diversity in upper management levels to how top managers interact and respond to a company’s shareholders.
Which ESG financial products are available?
More and more investors are putting their money where they see an ESG value proposition. Exchange-traded funds, along with individual stocks and mutual funds, are some of the most popular ESG financial products that match the ESG criteria. Nowadays, some of the wealth management houses Headway Wealth’ work with, as well robo-advisors like Wealthify and Nutmeg use ESG criteria to appeal to a wider pool of investors while providing more “ethical” offerings.
ESG investing trends globally
A report made by the US SIF Foundation identified that investors had about $11 trillion in assets that match ESG criteria. In 2018, investors had only $8.1 trillion in ESG assets, a 36% increase. That speaks volumes about the rise of ESG investing and how what was once niche investing is turning into mainstream, and it’s not limited to Europe from where it began. Now, it has a significant imprint in all markets in the world.
Millennials are the demographic that is driving this sector, making the most impact on ESG investments. In fact, the 2006 Cone Millennial Cause Study, looked into Millenials’ habits and found some interesting findings. One of the most significant ones was that millennials regularly prefer products and services from a company they see as environmentally or socially responsible. The study also revealed that almost half of them would turn down a service or a product from a company considered ecologically or socially irresponsible and the study further demonstrated how this demographic group deeply cares where they invest their hard-earned money. For them, ESG investing is the right path, and it is to be expected they too will continue to invest in these type of investments in the many years to come.
With all the ongoing global initiatives across nations focused on environmental protection, social impact and governance, it is clear ESG will continue to be on the rise and gain popularity with not just millennials but various age groups. Many of our fund providers are signatories of the Principles of Responsible Investing (PRI), the world’s leading proponent of responsible investing. They actively manage their ethical funds, keeping a close eye on the organisations in which they invest, and employing rigorous ongoing screening to ensure that ethical standards are maintained. So why not help the future and give your money an opportunity to grow?
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