World leaders met at Sharm el-Sheikh on Egypt’s southeast coast this month (November 2022) for Cop27. The climate change conference included commitments to carbon-neutral targets and ended with a historic decision to pay reparations to developing countries.
Against this backdrop, a recent report into ESG investment has found a small shift in ESG – environmental, social and governance – investing. As sustainability issues remain centre stage, a growing number of investors are increasingly willing to prioritise environmental impact over financial returns.
At HA&W we are committed to promoting social responsibility and tackling climate change. You can visit our Sustainability in action page to find out how we do just that.
In the meantime, keep reading to find out more about the current state of ESG investing, what 2023 might bring for sustainability and the scourge of greenwashing, and how HA&W can help you to align your investments with your values.
Positive returns are still the main investment driver but positive environmental impact matters too
A recent FTAdviser report confirms that 80% of investors still see performance as the main reason to invest. This remains the case, even when those investors are looking at ESG assets.
As a quick reminder, ESG investments are those focussing on:
- Environmental criteria like a company’s energy use, process sustainability, and environmental impact
- Social issues including how a company looks after its workers and the community in which it operates
- Governance factors including the transparency of accounting methods, the make-up and appointment of its board, and its tax strategy.
The report found that 14% of investors who factor in ESG concerns are now investing with their convictions, rather than worrying solely about returns.
Put another way, 14% of investors are putting their values on ESG issues at the forefront of their decision-making. And that 14% of investors can be further broken down into:
- 9% who were concerned about environmental impacts
- 5% who stated that they wanted their investments to positively influence social issues.
While that leaves the “G” of ESG investing unrepresented, it does highlight the shifting perspectives and priorities of investors.
Positive change is becoming more important than screening out negatives
As the inflows into ESG funds, and the returns on them, improve, consumers are asking more from their “green” funds.
There are many different investment strategies linked to ESG investing. Three of the main ones are:
- “Best in class”, in which you select the “greenest” choice from a sector you are already committed to investing in
- “Positive screening”, which involves picking only those companies with strong ESG credentials and who are making a positive impact
- “Negative screening”, wherein you actively avoid companies with poor ESG credentials but don’t look to make positive change.
In the last couple of years, as net-zero targets have made headlines and Putin’s invasion of Ukraine exposed the West’s reliance on Russian gas, a switch has been underway.
Investors are no longer content to simply avoid the companies they deem as “bad”. Instead, they want to be involved in actively promoting “good” practices and projects that they hope will make a difference.
The threat of “greenwashing” as ESG continues to grow
Greenwashing occurs when companies are less environmentally conscious than they claim to be, overstating or exaggerating their ESG credentials, either deliberately or accidentally.
This can lead to misleading figures on global efforts to reach net-zero targets, but it can also damage investor confidence.
Recent parties to find themselves accused of greenwashing include Volkswagen, fast fashion brands like Boohoo and Pretty Little Thing, and even Coldplay. The latter found themselves embroiled in a greenwashing furore when they partnered with the Finnish oil company, Neste, in a bid to cut emissions on their latest tour. Neste’s sustainability claims proved to be inflated, ultimately landing the British band in hot water.
Finding a way to manage and expose greenwashing claims will become increasingly important as the sector continues to grow in 2023 and beyond.
We’ve always had an eye on the environment at HA&W. In recent years, significant changes in the investment industry have raised our awareness of green issues even further.
When you approach us to discuss your long-term financial plans we will discuss your ESG investment options alongside more traditional choices. ESG investing has come of age. And that means that you can now help to make a positive impact in the world while aligning your money with your values on sustainability issues and seeing good returns.
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At HA&W, we check our carbon footprint annually and do our best to offset the CO2 emitted by our business. We also drive electric vehicles, encourage staff to cycle to work and have installed solar panels at the office, making it easy for clients and staff to do their bit.
If you would like to align your investments to your values on ESG issues contact us now to find out how our Chartered financial planners could help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
