What Is ESG And What Do I Need to Know?

Interest in the ethical aspects of investments has been growing over recent years. There’s certainly been a great deal of recent coverage on the subject in the financial press as investors respond to customer demands as to where their money is being invested.

Whether individuals are contributing to group pensions through their earnings or have set up their own arrangements, many will want to be sure that their money is being invested in companies that are ethically sound.

Historically, investors have for a long time been able to select funds that were labelled as ‘ethical’. Different funds used different approaches. Some focused on the exclusion of holdings in certain industries, for example: animal testing, alcohol, tobacco, certain manufacturing that could be considered damaging to the environment, gambling, arms, and nuclear power. Others’ approach was to focus on the most ethical companies in these sectors, for example oil companies who were investing heavily in renewable energy sources.

However, these approaches did sometimes mean that investment performance lagged behind other funds that did not apply this set of criteria. Consequently, they were often less popular with investors whose primary driver was to maximise their financial return.

In recent years, the emphasis has shifted onto ‘ESG’ investments, which incorporates a broader approach that can be defined as follows:

Environment – the extent to which companies’ activities have an impact on, for example climate change, biodiversity, natural resources, carbon emissions, air and water pollution.

Social – the extent to which companies’ activities impact on society and communities, including human rights issues, health and safety, labour standards, product liability, privacy and data security.

Governance – considerations around how companies are governed, including diversity issues, transparency, ownership, board independence, ethics and executive compensation.

By focusing on these additional elements, and in particular the social and governance aspects, companies who place a significant emphasis on ESG tend by definition also to be well run. They therefore provide good long-term prospects for stability and growth, and hence are attractive from an investment as well as an ethical point of view.

When you meet with your Brunsdon Financial Adviser, they will ask how important these issues are for you. Your response will be taken into account, alongside other factors such as your future aspirations, stage of life and attitude to risk, before any advice is given.

ESG is certainly a hot topic and, we believe, one that will continue to generate interest as more of us become concerned about the effects of human action on the planet.

Please do contact your Brunsdon Financial Adviser for any further information on this or indeed any other topic concerning your investment portfolio.

Investments can fall as well as rise, irrespective of the level of risk chosen and the value of an investment and any income generated from it cannot be guaranteed and can fall as well as rise as a result of market volatility. You may not get back the amount originally invested.

What Is ESG And What Do I Need to Know?

Interest in the ethical aspects of investments has been growing over recent years. There’s certainly been a great deal of recent coverage on the subject in the financial press as investors respond to customer demands as to where their money is being invested.

Whether individuals are contributing to group pensions through their earnings or have set up their own arrangements, many will want to be sure that their money is being invested in companies that are ethically sound.

Historically, investors have for a long time been able to select funds that were labelled as ‘ethical’. Different funds used different approaches. Some focused on the exclusion of holdings in certain industries, for example: animal testing, alcohol, tobacco, certain manufacturing that could be considered damaging to the environment, gambling, arms, and nuclear power. Others’ approach was to focus on the most ethical companies in these sectors, for example oil companies who were investing heavily in renewable energy sources.

However, these approaches did sometimes mean that investment performance lagged behind other funds that did not apply this set of criteria. Consequently, they were often less popular with investors whose primary driver was to maximise their financial return.

In recent years, the emphasis has shifted onto ‘ESG’ investments, which incorporates a broader approach that can be defined as follows:

Environment – the extent to which companies’ activities have an impact on, for example climate change, biodiversity, natural resources, carbon emissions, air and water pollution.

Social – the extent to which companies’ activities impact on society and communities, including human rights issues, health and safety, labour standards, product liability, privacy and data security.

Governance – considerations around how companies are governed, including diversity issues, transparency, ownership, board independence, ethics and executive compensation.

By focusing on these additional elements, and in particular the social and governance aspects, companies who place a significant emphasis on ESG tend by definition also to be well run. They therefore provide good long-term prospects for stability and growth, and hence are attractive from an investment as well as an ethical point of view.

When you meet with your Brunsdon Financial Adviser, they will ask how important these issues are for you. Your response will be taken into account, alongside other factors such as your future aspirations, stage of life and attitude to risk, before any advice is given.

ESG is certainly a hot topic and, we believe, one that will continue to generate interest as more of us become concerned about the effects of human action on the planet.

Please do contact your Brunsdon Financial Adviser for any further information on this or indeed any other topic concerning your investment portfolio.

Investments can fall as well as rise, irrespective of the level of risk chosen and the value of an investment and any income generated from it cannot be guaranteed and can fall as well as rise as a result of market volatility. You may not get back the amount originally invested.

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