Sustainable Investing and the Rise of ESG

As the 2021 United Nations Climate Change Conference (Cop26) that will be held in Glasgow this year approaches, sustainability and sustainable investing have been on our minds here at Private Client Consultancy.

If you have been following the financial discourse for some time now, then you will have heard certain buzz terms like ‘ESG’ and ‘sustainable investing’. More and more, the ESG (Environmental, Social, and Governance) criteria are being incorporated into investment strategies. This is because investors are becoming increasingly interested in the impact their wallets have on the environmet. Plus, sustainable funds have proven to be successful. It is apparent that there are financial benefits to investing in these kinds of funds and growing your portfolio in this way.

While there are numerous companies to invest in, only so many put the health of the planet at the forefront of their values. Because of this, investing in a way that is socially responsible can seem like a great feat. Ensuring that your money is going places that align with your values is a huge undertaking. Even though there are more opportunities than ever for investing in sustainable companies, it can be a difficult task if one does not know where to seek out the information. And even then, there is so much misinformation circulating around certain corners of the internet.

For example, recently, teenagers and young, first-time investors have been getting financial advice from the popular app, TikTok. However, those on the app that are doling out the advice are not always to be trusted, as their tips often do not address the nuances that investing requires. Or, in the worst cases, they turn out to be fraudsters.

Therefore, speaking with an expert about big financial decisions is vital. There are so many factors that need to be taken into consideration when investing and adding sustainability to that list can make this overwhelming. Our Wealth Managers can help ease your worries and clarify any confusion around sustainable investing, as it can be difficult to know where to even begin. For example, some might not be aware that if their money is in a default pension, it is likely that those pounds are going towards sectors with large carbon footprints. Our advisers can help you develop an investment plan that addresses these issues and puts your money in climate-minded investments while still seeing returns.

Evidently, investing is becoming greener—both in the sense that it is adapting to a climate-conscious culture and in the sense that it is producing returns. At PCC, we believe that climate risk is investment risk. As climate change becomes more of an issue that people are concerned about, the number of companies developing strategies for a greener future increases. Even the government is moving forward with implementing sustainability plans into its policies. In July of 2019, the UK launched the Green Finance Strategy with the goals of establishing green financial systems that promote clean and environmentally sustainable growth.

It is clear how society and culture have already shaped the financial industry. The financial industry will continue evolving because sustainability practices are always evolving. Businesses are finding ways of reducing their toxic emissions, and some are becoming carbon neutral and even carbon negative in some cases. If the consumer’s money continues to follow this trend, then investing opportunities will, too.

If these aspects of the changing culture are kept in mind, then it is undeniable that portfolios which integrate sustainability will perform well over the long term. Because so many are deciding that they want to stop investing in companies that have an adverse effect on the environment, the amount of sustainable funds keeps growing. This, coupled with the fact that consumers are also making more environmentally conscious buying decisions, has allowed for the emergence of numerous investment funds dedicated to reforestation, clean energy, and green transport projects. In the past decade, these have performed just as well—and in some cases, better—than their unsustainable counterparts. Therefore, many companies will continue to see the consumer steer away from them if they do not put sustainable policies in place.

Often, making this shift towards sustainability even increases profit for these companies because there is the potential to save money by using less water and energy. This makes it a win for the business, the consumer, and finally, the investor.

Evaluating a company’s green policies is another aspect of the sustainable investing process that can be daunting and convoluted for the individual investor. Information regarding a company’s programmes, policies, and management systems was voluntary to disclose in the past. Now, the government has acknowledged that this information needs to be reported, as it is an issue of ethics when investors have no details on what their money is funding. To ensure you are making the most out of your investments, your financial adviser should be your first point of contact.

At PCC, we have developed an ESG model for investing where we analyse risks and seek returns. We work with ESG agencies to assess how strong these policies are, and we critically analyse their sustainability efforts. So, if it is important to you that your money is going towards environmentally friendly businesses, speak to your PCC Wealth Manager or schedule a free consultation with one of our advisers about how to proceed.

For more information on what PCC is doing to help our clients sustainably invest, visit https://pccwealth.com/sustainable-investing/ and review our sustainability commitment.