Why is values-based investing so important?


What’s all the fuss about? Well, with the climate crisis at a critical point, and the number of values-based/ethical investing opportunities increasing, now really is the time to realign your investments to suit your personal values.

In our previous blog post we looked at the environmental, social and governance (ESG) metrics used across the industry to determine how sustainable, socially responsible or ethical a company is.

ESG considerations within investments have evolved from a risk management practice to a driver of innovation and creative solutions. As such, a strong ESG rating can create long-term value for investors, businesses and society.

Promoting ESG adoption throughout the investment value chain can serve to increase investment in sustainable development, causing a greater impact on a local and global level.

Local impact

 The UK Sustainable Investment and Finance Association (UKSIF) is a membership organisation, and a member of the Global Sustainable Investment Alliance (GSIA). They have been informing, influencing and connecting UK finance, policymakers and the public over the past 30 years. Their purpose is to grow sustainable and responsible finance in the UK.

 A report published by the UKSIF revealed that fund managers are putting increasing pressure on oil companies to shift away from their focus on fossil fuels. 68% of these fund managers, with products and engagement strategies linked to climate change-related financial risk, are calling on oil companies to align their business with the Paris agreement. Aiming to keep global temperature rise this century below 2°C above pre-industrial levels and to limit the temperature increase even further to 1.5°C.

 Pressure from UK investors resulted in the UK government implementing legislation setting a target to achieve net-zero emissions by 2050.

 As of October 2019, UK pension scheme trustees are now legally required to disclose ESG and climate change risks more explicitly. Appearing in London during Climate Action Week in July the UK Pension Minister, Guy Opperman, suggested pension funds will play a massive part in achieving the government’s target of net-zero greenhouse gas emissions by 2050.

The UK has a strong and well-developed social impact investment presence with lots of great work happening within local communities. Social impact investments focus on investments into voluntary and community organisations, charities, or social enterprises where a return on ‘impact’ (social, environmental or economic change) is expected alongside a financial return. Investing in this area lets you see tangible results within your local community and allows you to meet real people whose lives will be positively impacted.

Global impact

 Globally, sustainable investing assets in the 5 major markets (Europe, United States, Japan, Canada and Australia and New Zealand) reached $30.7 trillion at the start of 2018, increasing by 34% from 2016.

Last year more than 400 investors, with over €32trn in assets, called for governments around the world to introduce measures to limit global warming.

 A report produced by the Global Impact Investing Network (GIIN) this month showed that together, the 11 investor organisations studied, facilitated access to clean energy for 2.4 million individuals and contributed to the reduction of 3.9 million metric tons of greenhouse gas emissions within a year.

75% of the investors that responded to the GIIN’s 2018 Annual Impact Investor Survey said they are seeking to address climate change through their investments.

In their 2019 Annual Impact Investor Survey, of the 266 respondents, the GIIN reported that 40% of impact investors were said to be tracking the performance of all their investments to the Sustainable Development Goals (SDGs).

You really can make a difference

So, it’s clear to see that values-based investing has a large impact, locally and globally, on environmental and social issues. In fact, it’s a key driver making waves in the movement towards achieving a more sustainable future.

Yet, there are still many challenges impacting the sustainability agenda. One of which is the attitude-behaviour gap. UBS reported that last year while 65% of wealthy investors were motivated by sustainable values globally, only 39% held sustainable investments in their portfolios.

If you would like to know more about values-based investing and how we can help, please get in touch and speak to one of our Financial Planners.