Investing isn’t just about financial returns anymore. A growing number of our clients – and investors in general – want their investments to make a positive impact on society, too. As a direct result, we are seeing an increase in the demand for environmental, social and governance (ESG) investing.
ESG investing involves selecting a fund based on its potential returns and the company’s ESG practices.
Examples of ESG practices can include:
Environmental: A company’s dedication to recycling or reliance on renewable energy sources.
Social: A business that prides itself on offering exceptional employee training schemes or being heavily involved in lobbying efforts.
Governance: A company that prioritises board diversity or is committed to outstanding stakeholder relations.
What is ESG Investing?
When our clients come to us for advice on ‘standard’ investments – investments where financial returns are the main priority – we spend a substantial amount of time discussing their needs and wants. We find out as much as we can about their circumstances and financial goals before providing them with tailored financial advice.
When it comes to ESG investing, no two clients’ ethical objectives are exactly the same. This means that we need to delve even deeper to truly understand what they want to achieve. We must know which ESG issues / causes they are most passionate about, and what types of outcomes they want to see.
Our Senior Client Director, Nick Toubkin, relishes the additional challenges that come with advising on ESG investments:
“None of my clients who focus on ESG have the same priorities and goals with their wealth as one another. One of my clients has a real focus on targeting her wealth towards enhancing and widening access to female education, whilst another targets his investments on smart solutions to combat climate change.”
Understanding your investment manager
Despite the recent introduction of a shared framework for ESG phrases and terms, evaluating ESG fund performance and ESG returns can still be incredibly complex. The right investment manager can help you work out which fund is suitable for you. However, it is important to keep this one piece of advice in mind: take time to understand your investment manager before you accept any advice.
“It is critical to understand an investment manager’s approach,” Nick advises. “Do they prioritise financial return, or the impact that investments have? Some managers focus on investing in innovative start-ups with products that are expected to revolutionise their market. Others prefer to recommend investing in established companies who are leading change in their industry.”
Before meeting your investment manager, take time to think about the approach that you would like to take. While you want to be open to their ideas and advice, you also want to be sure of your ESG goals – which issues and initiatives matter most to you? Are there specific types of companies or industries that you do – or don’t – want to invest in?
Taking the next step with ESG investing
If you are passionate about ESG practices, then investing in an ESG fund may be the right course of action for you. Our team of highly experienced financial planners can provide you with bespoke advice and ongoing support.