Do You Want To “Go Green” With Your Investments?

By castlegateadmin | Investments | No Comments

Environmental issues certainly seem to have come more to the fore in public discussion and consciousness in 2019. David Attenborough’s “Climate Change: The Facts” has had a big impact on raising the issue, as have widespread protests from Extinction Rebellion (an environmentalist movement) across the country.

Moreover, Greta Thunberg, a famous Swedish teenager who is active on environmental issues, has also captured headlines which her recent two-week sailing trip to New York so she can participate in the UN climate change summits.

These trends follow an interesting trend in financial planning. In 2019, more and more people are intrigued to understand how their investments impact the environment, and whether their investment strategy can be pivoted so that it is more “environmentally-friendly”.

In this short guide, our financial advisers in Grantham (Grantham is quoted here but Lincoln below) will be sharing some thoughts on these matters. We’ll briefly outline the idea of “ESG” investing, the different forms that environmental investing can take, and some suggestions about the next steps for your research.

Please note that this content is for information purposes only, and should not be taken as financial advice. To receive regulated, bespoke advice into your financial affairs and situation please consult an independent financial adviser in Lincoln (Lincoln is quoted here but Grantham above?) or your local area.

ESG Investing: Overview

Broadly speaking, ESG investing refers to investment opportunities which prioritise investment return alongside consideration for the physical environment, society and company governance.

This is sometimes called ethical investing, sustainable investing or responsible investing. There are some important differences between these and other terms, but they all try to fundamentally get at the same idea. Rather than simply focus on profits and investment returns, ESG investing seeks to bring value, principles or “conscience” into the picture.

It’s worth mentioning that “responsible” investing, in itself, is nothing new. Many Methodists and Quakers in the 18th Century sought to prioritise putting money towards investments which sat within their moral principles. It is from the mid-late 20th and early 21st Centuries when the fund management industry started to develop, that these sorts of labels started to emerge.

So, what are some of the different types of ethical or environmental investing, which you might want to discuss with your financial adviser? Here are some example approaches:

Exclusivity

This is typically regarded as the “strictest” form of ESG investing. With the investment strategy, you and your investment manager automatically exclude industries, sectors and companies which are known to have a high carbon footprint or a particularly harmful record regarding their impact on society or corporate governance. Examples of possible exclusions from a portfolio might include petroleum, mining/ore processing and chemical manufacturing.

Market Leadership

This approach is less strict than the aforementioned one, yet still strive to pursue ESG principles by investing in companies which are “setting an example” in their industry or sector. This might allow an investor to commit their money, for instance, towards companies which occupy an “environmentally harmful” sector (e.g. car manufacturing) if they are leading and influencing that industry towards ESG values (e.g. by focusing on the production and sale of electric vehicles).

Impact Investing

The above two approaches tend to have quite a “negative” focus. This isn’t to say that they are wrong strategies; only that they operate by excluding harmful industries or companies, rather than investing in sectors and businesses which are pioneering solutions to environmental or societal problems. “Impact investing”, however, seeks out investments where companies are seeking to actively address these issues in a positive, often innovative way. An example might be investing in companies that are developing clean energy storage technologies.

Incorporation

For some investors, focusing primarily or exclusively on ESG investments would be too risky for their personal financial goals. However, they might still be keen to adapt their portfolio gradually to incorporate more ethical or environmentally-friendly opportunities. This is probably the most common approach to ESG adopted by seasoned investors who have already built up a large investment portfolio, and who are perhaps at the point where they wish to focus on preserving their wealth. Introducing an element of ESG to their portfolio (e.g. adding an ESG fund to their portfolio of equity investments), in agreement with their financial adviser, might be a good way to “test the waters” with ESG without exposing their portfolio to too much risk.

Summary & Next Steps

This short guide by no means exhausts the large subject of ESG investing. There are other ESG approaches which we have not had time to cover here, for instance. Yet we hope the above has provided inspiration and insightful facts to help inform your thinking.

It’s certainly important to think about how our behaviour and money impact the world around us. The main advantage of ESG investing is that it offers a way for investors to align their assets and funds with their moral values. The potential downside, however, is that certain ESG investments might not sit very well with your overall investment strategy or goals.

We recommend that you consult your independent financial adviser if you are thinking about changing your portfolio, in any way, to start incorporating ESG investments. He/she will be able to point out pitfalls or opportunities in your ideas which you might not have noticed. Moreover, they can then show you a wide range of appropriate funds, ETFs and other investments on the wider market which you might not have found on your own.

If you are interested in discussing your investment portfolio with us, then we’d be delighted to hear from you. Get in touch today to arrange an initial exploratory consultation at our expense with one of our specialists here at Castlegate via 01476 591022 or info@casfin.co.uk.