What is responsible investing?
Responsible investing is a financial strategy which focuses on doing good by investing in certain companies and sectors that focus on environmental, social and governance issues, which has received increasing interest over the last few years. Many investors are now actively looking to ensure that the money they invest is supporting responsible companies, practices and outcomes. This approach has also been driven as a result of more groups who haven’t traditionally invested, including younger people and women, now more likely to do so. As a result these groups – who are typically more concerned with issues around responsible investment – are driving increased awareness of the approach.
Ultimately – as this trend develops – it’s clear that a growing proportion of investors are set to consider investing in ethically-driven companies which are playing their part in making the world cleaner, safer, healthier and more equitable.
Defining key factors
There are number of key areas which are typically taken into consideration when planning a responsible investment. These tend to fall into three main topics – referred to as environmental, social and governance, or “ESG investing“.
Environmental considerations involve opting for investments in companies that support or provide environmentally friendly products or services. Some of the issues which might be taken into account include climate change, pollution, fracking, biodiversity, environmental management, waste and the use of natural resources including water, forestry and mining. A key example of how an environmental strategy might be assessed is in determining whether a company has set upon achieving net-zero emissions as part of their daily operations.
Social issues which might be taken into account when investing responsibly are broadly concerned with human rights, working conditions, child labour, equal opportunities, food supply, obesity and slavery. Recently, themes including employee diversity, community engagement and philanthropy have also become more important to investors looking to build a social element into their investment strategy.
This area directly relates to how companies are being run. Some of the factors taken into account include business ethics, company management, board diversity and structure, executive pay, avoidance of bribery and corruption and compliance. For example, it may be important to consider what political lobbying and donations the firm has been part of in recent years.
Why should you consider responsible investing?
Responsible investing can help you to ensure that your money is used in a way which best reflects your personal beliefs and values. For example, you might feel uncomfortable investing in sectors which are involved in activities which are ‘unacceptable’ or ‘unethical’ to you based on their business practices. This may include companies which operate in the tobacco industry, or those concerned with fossil fuels. You may also want to ensure that when investing your hard-earned funds, you want to use them to enact positive change, creating more than just financial return.
There is also a growing body of research which suggests that companies which are well run and take into consideration good working practices and ethical decisions, perform better and offer stronger investment opportunities.
Notably, companies which incorporate environmental, social and governance themes are also likely to be more resilient in the future. It’s certainly clear that many investors have a strong appetite for choosing responsibly led companies, and so those who have already made, or are in the process of making changes will be more ready as regulation tightens and attitudes evolve.
By supporting companies who are making responsible decisions, which reflect their wider societal and global impact, you can achieve greater peace of mind safe in the knowledge that your investments are creating a positive impact.
To discuss any aspect of responsible investment please get in touch with your nearest office.
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