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Is ESG Investing all it’s cracked up to be?

by | Dec 3, 2020

More and more investors want to know where their money is going, and what it’s being used for. But is ESG investing a niche fad, or a positive future for investors?
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ESG Investing might feel like the buzz word of the moment (alongside lockdown and pandemic), but it’s a growing class of investing that many are considering in these turbulent times (ESG being an acronym for investments that consider environmental, social and governance issues).

In broad strokes, anything oil related and Chinese in origin is out (even though some of the oil forms are amongst the world’s largest ‘green’ investors). It’s all about those who ‘do good’ and align with positive values. It’s an investment sector that many consider to be muddied by jargon and many half-truths. You need some tough boots to navigate this one on your own.

Guidance on how to invest ethically in accordance with your values is tricky. The root of the problem is quite simple – what counts as ethical to one person may not count as ethical to another. While one investor may be happy to put money into Chinese companies, another may not. Furthermore, the challenge is to find funds that meet your values while also diversifying investments properly across asset types such as shares and bonds, as well as across companies.

It’s not all grey-area though – some funds are so large they actually have the power to “engage” with companies, meaning they can use their influence as a shareholder to push for better ethical outcomes such as boardroom diversity and lower carbon emissions.

There are also a few specialist ethical funds or even “positive impact” funds – a branch of ESG investing where fund managers don’t just avoid bad companies but seek out firms changing the world for the better, by helping to address climate or healthcare challenges for example.

The disadvantage is that many such ESG funds have short track records and higher fees, and it can be hard to combine them to build a well-diversified portfolio suitable for a pension.

If ESG investing is something you’d like to find out more about, give the office at GSI a call. We’re always happy to help people find the right investments that best fit the way they see the world.

 

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