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Investing Responsibly – Going Mainstream

  • Investing Responsibly – Going Mainstream

    Investing Responsibly – Going Mainstream

    Investing Responsibly – Going Mainstream

    By Victoria Redhead APFS, Chartered Financial Planner

     

    It’s getting easier to be green….

    Ethical investing is by no means a new trend, and those investing as early as the 1970’s may well have seen this as an option when setting up a pension or life policy. However, over the last decade we have all become increasingly aware of the impact organisations have on the environment, their stakeholders and wider society. As a result, investors want to know more about where their money is going, and what it is being used for.

    This increase in consumer awareness has resulted in a greater range of responsible funds and portfolios than ever before. No longer just a single option on a list of funds to tick a box, there are now a huge array of investment opportunities available to meet the needs of anyone with concerns over what companies do and how they behave. Whilst this increase in consumer choice is undoubtedly great for the financial services industry as a whole, it has broadened the terminology which can be intimidating for investors new to this area.

    General terms can include ethical investing, sustainable investing, socially responsible and impact investing. These terms (and others) can be used interchangeably, however there is a system used to measure factors that most concern investors – known as ESG.

    ESG – What does it mean and how can it help?

    ESG seeks to measure companies on certain themes;

    Environment – climate change, pollution, management of natural resources.

    Social – human capital, product liability, social opportunities.

    Governance – corporate governance, behaviour, diversity and politics.

    Often funds and portfolios will use ESG metrics to both negatively screen (i.e avoid ‘sin’ companies) and positively screen by including the organisations displaying positive behaviours in these areas. This can provide a balance between avoiding the traditional ‘nasties’ such as tobacco or oil, but also including those companies actively looking to improve their impact on the world.

    Risks and Returns

    Many of the risks associated with ‘responsible’ investing are simply that of investing generally, such as market risk – the ups and downs of the stock market. However traditionally the concern is that where social responsibility is prioritised over profits, there is a risk that this can impact on the bottom line.

    Having said that, the main objective of ‘responsible’ investing is, as with any investment, financial performance, and there is growing evidence that prudent sustainability practices can have a positive effect on this. Whilst we may not be able to predict whether responsible funds and portfolios will outperform their traditional counterparts, one thing is for sure – the appetite for measuring performance by more than just profit and loss shows no sign of waning anytime soon.

    The value of your investments can go down as well as up, so you could get back less than you invested.

    To find out more or to discuss your situation, please call us on  01732 746188 – we look forward to hearing from you.

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