Sustainable investing is an approach which has grown in popularity over the last few years. When choosing to invest, a growing wish is to ensure that any investment matches your own set of values, enabling you to benefit society whilst building your long-term financial plans.
What is sustainable investing?
Sustainable investing balances traditional investing with environmental, social, and governance-related (ESG) insights, to try to improve long-term outcomes for clients, by investing in companies which are focussed on making a positive impact to society. This might be through a structured corporate social responsibility programme, which sets out what the company is planning to help it meet certain sustainability goals, along with a framework of the steps which need to be met to achieve them.
Putting in place a sustainable investment strategy enables you to invest in companies whose vision and values are aligned with your own. Some of the issues you might be keen to take account of include climate change, pollution, animal welfare, anti-corruption and equal rights. This type of investment approach has become much more significant recently with research showing that 77% of people wouldn’t invest in something which is against their personal beliefs.
There are lots of ways in which sustainable investing can be referred to but the most common references include:
- Ethical investing
- ESG (environmental, social and governance) investing
- Impact investing
- SRI – socially responsible investing
- Values based investing
- Conscious investing
- Green investing
Sustainable investment strategies
Sustainable investing can involve a range of approaches, but there are typically four main styles or strategies:
- Responsible ownership and engagement: This usually applies to ‘mainstream’ investments which fund managers own and expect to hold on to over a long period of time. As a result they are likely to be much more active about their responsibility as part owners of companies, and ensure that sustainable areas are highlighted, discussed and bought to the table at company or shareholder meetings. The aim is to encourage companies to improve their practices in areas where investors believe sustainability could be managed better for shareholder’s benefit.
- Avoidance or negative screening strategies: This approach avoids companies that are linked to practices that are deemed ‘unacceptable’ or ‘unethical’. Examples include those companies which are involved in gambling, arms, animal testing or tobacco.
- Positive screening strategies: This approach involves actively investing in companies that meet ‘positive’ ethical or sustainable objectives. Some funds focus on a single sector or issue, such as moving towards being carbon neutral, although most are more broad-based, offering solid business practices and commitments to overall ethical or social issues across all operations.
- Impact investment strategies: Impact investing aims to generate specific beneficial social or environmental effects in addition to financial gains. Usually investment is made in businesses, non-profits and sectors such as renewable energy, basic services (including housing, healthcare, and education), micro-finance and sustainable agriculture.
Who can be a sustainable investor?
Anyone can be a sustainable investor! There was a time when ethical, sustainable or ‘green’ issues were the concern of a small, niche group of investors who tended to have very strong views. But times have changed, and this type of approach has now become increasingly relevant for many people. As this type of investment strategy develops, it’s now possible to choose a path which best suits you, your attitude to risk and your own values.
How do sustainable investment funds perform?
As sustainable investing has grown in popularity, so has the research around whether it performs well against more traditional investment options. Reports suggest that companies with environmental, social and governance criteria are better positioned to perform well against the broader market. With the knowledge that environmental and societal issues can impact share prices, it may be useful to consider sustainable investment as part of your own portfolio.
The growth of sustainable investing
Sustainable investing is fast becoming a mainstream approach. In the last twenty years it has grown significantly with the Investment Association reporting that sustainable assets in the UK have grown from £2.9 billion to £40 billion between 2003 and 2020; he approach has picked up enormous momentum in the past year – fuelled by the Covid pandemic, growing awareness of global issues and investor sentiment. Even more interestingly is that nearly a quarter of that overall investment, a staggering £8.8 billion, was made between January 2020 and September 2020. In the same period in 2019, the figure stood at £1.9 billion.
As sustainable investing becomes a much more conventional element – both when investing and as companies embrace their own ESG strategies – it’s likely that it will automatically be adopted into portfolios, and that many funds will have a sustainable element as standard.
Sustainable investing with The Fry Group
If you are considering sustainable investing there will be a number of key issues for you to consider. As part of this you will need to take time to decide on the sustainable issues which are most important to you, which will need to be taken into account, alongside the more traditional elements of investing – your own plans, budget, timeline and attitude to risk.
Our team are highly skilled in helping you understand all the options, and many are well versed in this area of investment. A number of our advisers hold the CFA Certificate in ESG Investing, a qualification which enables them to integrate environmental, social and governance factors into the investment process.
To discuss your own portfolio, and any aspect of sustainable investment, please contact your nearest office.
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