Today is World Environment Day, and this year’s aim is to encourage collective global action in tackling plastic pollution. As companies look to improve their own green agendas, did you know that you can support sustainable practices through your investment choices? We share some insights on how sustainable investing can be aligned with your personal values without compromising on long-term returns.
What is ESG investing?
ESG stands for ‘environmental, social and governance’. ESG investments are screened and rated based on a company’s policies and approaches to sustainability and social responsibility. Investors can then align their portfolios with their beliefs and values, thus encouraging companies to prioritise responsible business practices.
As an example, you could choose to invest in a company that is actively reducing plastic packaging or environmental pollution. However, there are a lot of myths and ‘greenwashing’ when it comes to ESG investments. Greenwashing is where companies deliberately mislead investors by issuing unverified or false environmental claims.
One big myth is that an ESG investing strategy sacrifices performance, but this simply isn’t true. Most ESG investment portfolios either match or exceed conventional returns. In fact, according to research by Robeco, sustainability data can positively influence returns.
Every investment fund or portfolio should be assessed on its own merits and returns.
In May 2024, the Financial Conduct Authority (FCA) introduced new anti-greenwashing rules. This is why you should always consider using an ethical financial planning firm with their own responsible investment portfolios.
Why sustainability matters in investing
Sustainable investing has an important role in ensuring large corporates play their part in improving their environmental policies. However, we all have a part to play in promoting a more sustainable economy and planet. Interestingly, research highlighted by PensionBee found that strong ESG practices often correlate with operational efficiency and resilience.
It’s worth noting that different criteria can be applied to similar investment funds. Exclusion-based ethical investing avoids companies that go against traditional values, such as tobacco, alcohol, weapons or adult entertainment.
Stewardship funds or socially responsible investing applies their own criteria to determine which companies to exclude from their funds. They might start by excluding ‘sin stocks’, but then apply additional criteria, such as the use of ESG scoring.
ESG investing focuses on company practices aimed at preserving the environment, social policies that treat people and communities fairly, and responsible governance. ESG investment factors are also industry-specific – for example, while one company’s strategy could be to reduce water usage, another might focus on improving their mining practices.
However, ESG screening might focus on material risks and opportunities affecting financial performance, instead of excluding ‘unethical’ sectors. If a fossil fuel company is actively managing a climate risk and transitioning, then they could be included in an ESG portfolio.
Sustainable investing is very similar to ESG investing. However, it prioritises companies with environmental principles at the forefront of their business practices and excludes those who are harming the environment. There are also other forms of responsible investing.
Consider Good Practice Portfolios
Due to a growing awareness of environmental issues, there has been an increased demand for responsible investment options. With both the EU and the FCA’s new anti-greenwashing rules, companies are being scrutinised for clearer ESG disclosure.
At Balance Wealth Planning, our Good Practice Portfolios are a suitable option for ESG-conscious investors. Our aim is to provide responsible investing opportunities, which can be aligned to our clients’ values and financial goals without compromising returns.
Our Good Practice Portfolio range enables you to invest in low-cost funds, tracked against global investment markets towards good-practice companies. Although we cannot control returns, we can control factors that make a real difference to our clients’ long-term objectives. Our approach minimises investment costs with a well-diversified portfolio, and we use an investment philosophy to guide and steer our decisions.
There are three filters applied to our Good Practice Portfolios:
- Companies that have been assessed as having poor practice in the areas of Environmental sustainability, Social responsibility and good Governance are excluded.
- Companies with best practice in the same areas of Environmental sustainability, Social responsibility and good Governance are preferred.
- Companies that provide goods and services generally considered as either harmful to the environment and/or people are excluded.
Holistic Financial Planning, Nottingham and Derby
If you are considering a sustainable investment strategy, our Good Practice Portfolios are founded on a simple investment philosophy, which is supported by strong evidence. We apply exclusions, integrate ESG factors, and adopt Stewardship or Socially Responsible criteria.
When it comes to due diligence, our financial planners will work hard on your behalf so you can delegate your investing with full confidence. We will match your values to ESG or sustainable funds, ensuring full alignment with your financial goals and investment strategy.
If you would like to align your investment portfolio with your values, please get in touch to speak to our financial planning team.
Sources:
https://www.worldenvironmentday.global/
https://www.pensionbee.com/uk/blog/2024/july/5-sustainable-investing-myths-debunked
https://www.fca.org.uk/publications/finalised-guidance/fg24-3-finalised-non-handbook-guidance-anti-greenwashing-rule
https://balancewealthinvesting.uk/good-practice-portfolio
