A Growing Trend: ESG Investing
Since the start of the Covid-19 pandemic, there has been a growing interest in ESG investing. This could likely be due to a renewed awareness of how environmental and social issues can significantly impact investment funds, leading investors to consider more sustainable ways to place their finances in the long term.
What is ESG Investing?
This strategy of investing is one that takes account of environmental, social and governance (ESG) criteria as well as the usual financial criteria investors look for in funds. As the world changes around us, business models have to adapt, meaning many currently successful ventures are not likely to be sustainable for the long term. Not only this, but investors interested in ESGs may be concerned about the impact of their finances on the environment or society.
Why is ESG Investing Becoming More Popular?
There has been a considerable increase in the amount invested in ESG funds over the past year, which is likely as a result of a relatively strong performance from the sector when compared with funds that are more traditional.
This popularity is likely due to the way ESG funds tend to benefit from being less exposed to fossil fuel companies, which have been significantly affected by falling prices due to the economic downturn fuelled by lockdowns and the Covid-19 pandemic.
This increase in popularity is also helped by legislative changes, with governments around the world switching their focus to cleaner energy, reducing carbon emissions and tackling the ever-growing concern of climate change.
Who is More Interested in ESGs?
It’s a common belief that younger people tend to be more concerned about the environment and the social impact of their investments, but investors of all ages may soon be asked about how they’d like to invest and whether they’d like to consider ESG funds.
This means that it’s important for older investors to potentially revisit their investment portfolios and assess whether they’d like to bring more ESG factors into the mix, considering the longevity and sustainability of funds when subjected to social and environmental change as well as the legislation that is likely to go along with it.
It’s also beneficial to consider, if you’re investing for future generations, whether your portfolio will hold up in a more environmentally sustainable world. While many oil companies and airlines may have delivered good returns previously, the future can seem uncertain for sectors like these as the world moves towards greener ways of generating energy and travelling.
How Will ESGs Change Business?
The growing interest in ESG investing means that businesses will likely have to become more transparent about their practices in order to attract investment and avoid a negative effect on share prices. This means that many sustainable initiatives promoted by companies will need to be authentic and backed up by good business practices, such as living wages, sourcing materials ethically, reducing waste and more.
The difference between ESG funds and ethical funds is that ESG tends to look deeper into business’s working practices rather than simply excluding certain sectors. This means that companies who want their business model to stay strong well into the future will need to consider ESG factors.
KLO Financial Services
At KLO Financial Services, we have a team that can specialise in assessing your priorities and pointing you in the right direction when it comes to ESG investing. If you’d like to find out more about how we can help you, please email our ESG investing specialist matt.booton@klofinancialservices.com or call 0121 726 4720.