Good Money Week is upon us — an annual event designed to promote using your money to do some good in the world. It’s the investment industry where this trend has really gained traction. A recent study by Triodos Bank shows that more than half (55%) of investors say they would like their money to support companies that contribute to society and the environment. Some 61% of investors believe that for the economy to succeed in the long term, they need to support progressive businesses.
What’s it all about?
Many savers feel passionate about protecting the environment, in particular, reducing the amount of plastic waste. But investing for good goes further than just the environment. Responsible investors pay particular attention to a company’s record on environmental, social, and governance (ESG) issues which can help measure just how responsible or sustainable a company is. The main areas that fall under the environmental bracket are a company’s approach to climate change, nuclear energy and toxic waste.
Social investment refers to issues such as treatment of staff and suppliers, and to what extent a company upholds labour and human rights. Governance holds a company to account on leadership, matters of executive pay and its stance on shareholder rights. These issues also appear in the 17 Sustainable Development Goals (SDGs), created by the United Nations as a roadmap to achieve a more sustainable world by 2030.
There used to be much concern about whether investing only in businesses that adhered to certain ethics could limit investment performance. Yet there is growing evidence that suggests that funds which adopt an ESG approach will boost performance. According to research by Hermes, well-governed companies tend to outperform poorly governed ones by an average of over 30 basis points per month. What’s not to like?
How do I do it?
Your long-term savings, whether in an ISA or pension fund, can help support sustainability by backing companies committed to ESG factors. For example, Unilever, the consumer giant that is home to Marmite, Dove soap and Magnum ice cream has cut packaging waste per consumer by 28pc since 2010. It has targeted at least 25pc recycled plastic content in its packaging by 2025. Consumer goods firm Henkel has recently pledged to ensure its products contain at least 35pc recycled plastic in Europe by 2025. These are just two examples; there are plenty more companies all over the world which have announced plans to behave in a more responsible manner.
Instead of seeking them out and buying shares in those individual companies you can spread the risk by choosing a fund, which offers the opportunity to invest in lots of different sustainable stocks. There have been lots of ESG-focused funds launched in the last 12 months alone – and more are expected to follow as the sector grows in popularity. Aberdeen Standard Investments launched its first impact fund — the Global Impact fund — in October 2017.
Just four months later in February it launched the UK Equity Impact – Employment Opportunities Fund, in collaboration with Big Issue Invest, the social investment arm of The Big Issue. The fund aims to generate returns by investing in companies which promote and implement good employment opportunities and practices. There are also many long-standing funds. Stewart Worldwide Sustainability, Kames Ethical Equity, Impax Environment Markets investment trust, Liontrust Sustainable Future UK Growth …the list goes on.
And Barclays launched an impact multi-manager fund in August 2017. The Multi-Impact Growth Fund promises to pick the best in class of ESG funds. As well as running specific ESG or responsible funds, many asset management groups are working to integrate ESG into their entire businesses – some are already doing it. All the signs point to this becoming a fast-growing trend – and perhaps one day, the norm.