Investing in Sustainability 

Updated on 24/02/2023

 

Back in the summer of 2019, I scribbled four words on a post-it.

“ESG Investing Option – V. IMP.”

That’s because from the very first days of SpringGen, we knew that being able to make sustainable investment decisions was going to be crucial to our target audience and the next generation of investors.

And though millennials and Gen Z get, frankly, unwarranted flack for having short attention spans and an entitled mindset, it is these groups that are driving ESG growth for the future. In fact, according to a recent report by NielsenIQ, 75% of Millennials make spending choices depending on how environmentally friendly a product is[1]. Plus, following the Covid-19 pandemic, 60% of millennials are feeling more inclined to invest in companies that meet ESG criteria[2].

So, with so many new investors looking to curate environmentally friendly portfolios, sustainable investing isn’t just ‘having a moment’. It’s the start of a revolution.

What is sustainable investing?

Sustainable investing can go by a few different names, including socially responsible investing, green investing, and ethical investing.

Whatever name you give it, the aim is the same – to create an environmentally and socially-conscious investment portfolio. For that to happen, you’re going to be diving into how a company operates right down to its core, rather than stopping at profits and share price. It’s all about considering the ESG merits of a company or fund:

• Environmental – e.g. how a company or fund takes action against climate change, pollution, water management, etc.
• Social – e.g. how a company promotes diversity, inclusion and safe working conditions throughout the supply chain
• Governance – e.g. how a company enforces policies on bribery and corruption, and how they protect the privacy of consumers

Though ESG factors are certainly central in assessing the sustainability of a company or investment, they are just the starting point. The goal in building a truly sustainable investment portfolio is to actively seek out companies and funds that are making a positive contribution to the world in everything that they do, not just making their ESG stats look a little better.

 

What are the benefits of making sustainable investments?

Though investment options are always subject to change and returns are never guaranteed, there have been very encouraging signs from ESG stocks so far.

Beyond protecting the planet and promoting socially responsible global practices, sustainable investments are frequently beating other stocks on the market. Companies with higher ESG scores are seeing larger returns for their investors and appear to be less volatile. Providing a more balanced, less risky, but still profitable option, ESG stocks are already proving themselves to be a great long-term investment solution.

 

What are some sustainable investment options?

Sustainable investing is in its infancy. It’s only really in the last decade that investment managers have started to “screen” companies based on ESG criteria. And though 10 years might seem like a long time by many other standards, it’s a blink of an eye in investing terms.

As more and more sustainable options become available on the market, and continue to develop a track record of performance, the choices available to us as investors become more appealing.

And, if you haven’t quite broken into the world of investing yet, there may still be ways that you can contribute to conserving the environment. Many of us take our workplace pension investments as a given, but there can be opportunities to swap your investments to more environmentally and socially conscious options. And though you should always seek professional financial advice before making changes, it might be worth exploring some choices with your pension provider in the first instance.

 

How do I know if I’m investing sustainably?

Investment managers all have different filters when it comes to sustainable investing. Some might screen for specific issues, for example, greenhouse gas management and reduction. Some may completely avoid investing in certain companies. For others, there may be a reduction but not a complete ban.

And then even if they look at the same factors, different managers may view these elements in completely different ways. For example, when considering an electric vehicle manufacturer, one manager may view it as a “good” company, because it is contributing to the decarbonisation of the motor industry. However, other managers will see it as a “bad” company because it mines for battery components. So, there can be a lot of bias when it comes to deciding what is truly a sustainable investment.

To combat this, our goal is to get to know YOU and, mainly, what you value. So, for example, if you couldn’t stand to fund a company that profits from animal testing, we’ll be assessing your potential investment avenues with that in mind.

We do our research to make sure we’re up to date with the latest options, so that we can give your money the best chance of growth, while being mindful of funding companies that are the worst climate offenders and/or contribute to social injustice.

As ESG investments continue to multiply, we will continue to seek out investment managers who have a proven track record in sustainable investing, rather than leaping into uncharted territory for the sake of it. It’s exciting to consider what the future of ESG investing will bring, and we’re thrilled to be helping the next generation of investors fund companies who are fighting the good fight for the environment and humanity.

 

 

 

Editors Notes

V2 24/02/2023. SpringGen Advice Limited (FCA no: 926966) is an appointed representative of Acumen Financial Planning (FCA no: 218745), authorised and regulated by the Financial Conduct Authority. The content within this website should not be looked upon as advice or recommendation. Clients should seek appropriate guidance from their financial planner.

 

 

[1] ‘How Millennials and Gen Z are Driving Growth Behind ESG’, nasdaq.com. September 2022

[2] ‘The Millennial Generation and Wealth Transfer Paves the Way for ESG Investing Boom’, cmswealth.co.uk, February 2023