ESG Investing is becoming more and more popular because people are starting to realise that companies with non-financial indicators of success perform better on the market too. That’s why a good ESG tailored portfolio can balance your financial returns with sustainable impact. Here are some of the key benefits.
The concept of ‘impact investing’ has been around a while. In the USA during the 18th Century, Methodist groups refused to support companies that promoted tobacco, liquor, or gambling in accordance with their beliefs. And the following century, Quakers forbid their members from investing in slavery and war (source). But, on the whole, the narrative around investing has focused only on achieving high financial returns.
A growing awareness for ESG Investing is changing this, with investors interrogating how their wealth is impacting the planet. The benefits of ESG Investing are much broader than one person’s financial prosperity. ESG Investing allows you to grow your portfolio and have a positive impact on the planet at the same time. It aligns your personal beliefs and goals with the way you manage your money – something our financial life planners are rather passionate about!
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The COVID-19 pandemic demonstrated the financial benefits of socially responsible investing. Companies with a strong track record of fulfilling ESG criteria fared better throughout the uncertainty, revealing lower volatility and greater resilience. This is because organisations with high ESG scores generally have more robust company structures and good environmental initiatives in place that mean they are less affected by worldwide fluctuations – operating sustainably in more ways than one!
Long Term Market Value
78% of fund managers and analysts felt that managing social and environmental risk had a positive impact on a company’s market value in the long term. There are various reasons for this. Operating sustainably can lower a company’s costs and streamline processes. It can also boost brand awareness and encourage customer and shareholder satisfaction. ESG factors also mitigate many financial risks faced by companies, because they have strategies in place for environmental, social, and governance-based sustainability. All of this and more contributes to making the business more of a valuable prospect – financially and otherwise – for all sorts of investors.
Overall Management Quality
ESG is a good indicator of a company’s overall management quality, because it often points to high levels of transparency as well as strong leadership. Driving environmental and social initiatives requires a robust management team led by a long term vision, and this can be a key determinant in a business’ lasting success. Good for you, good for the planet, and good for the business – what’s not to love?
25% of UK investors reportedly plan to make ESG investments by 2025. With ESG Investing a growing trend, more and more companies are working to meet the criteria and reporting on their sustainability practices. Businesses that wouldn’t necessarily act sustainability out of the goodness of their own hearts, may be convinced to innovate and adapt to a changing investment landscape by following the money. If investors demand it, companies will have no choice but to provide!