A guide to ESG and socially responsible investments

22 Feb 2021

esg sri

Have you considered whether you are as green or ethical in your investment choices as you are in your personal life?

Recent years have seen an ethical awakening with businesses and consumers becoming more aware of the impact of consumerism on our environment and society. But what about the impact your money has? Have you considered whether you are as green or ethical in your investment choices as you are in your personal life?

The first socially responsible investment fund – the Pax fund, set up in 1971 in the US as a stance against the Vietnam war – was launched 50 years ago, but it is only far more recently that ESG – investments with environmental, social, and corporate governance – and socially responsible investing (SRI) has begun to be taken seriously by industry and investors.

In October 2020, The Big Exchange – Co-founded by The Big Issue – launched with the mission of make everyone’s money count for more. The investment website offers ESG and SRI solutions for adults and children, providing access to 36 funds that generate positive social and environmental impact.

Covid-19 has been a watershed moment; with research from the ethical bank Triodos suggesting that over a third of Britons consider ESG and SRI to be fundamental to addressing climate issues and to avoiding future pandemics.  In this blog, the Generation Charity Consultancy experts discuss what this type of investing is, the different ways to invest ethically and importantly how to get started.

What are ESG and SRI?

ESG and SRI are in essence investment decisions which align with your individual beliefs and values – be they social, moral or religious. Areas such as climate change and the environment, animal testing, workers’ rights, tobacco, the arms industry and gambling are all areas taken into account by ethical investment specialists.

At its simplest, ESG and SRI are about believing there are other important aspects to consider, not just whether or not investments are making money. Historically, the focus of these type of investment funds was more on the screening of companies to remove those that produced products or services in conflict with an ethical investor’s values. But in recent years the sector has progressed to deliver positive screening, which focuses on businesses that both aim to achieve a positive social impact and have leading ESG – environmental, social, and corporate governance – credentials. Investing is increasingly about choosing investments that strive to have a positive impact on the world in some way.

How big is the ESG and SRI sector?

Ethical investing is still relatively small in the grand scheme of things, but it is experiencing rapid growth. Funds that specialise in ESG investment principles attracted net inflows of $71.1bn globally between April and June 2020 (according to the financial research firm Morningstar) meaning that ESG fund flows equated to almost a third of all European fund sales.

The investment industry has been quick to respond to demand, with in excess of 70 such funds being launched during the first three months of 2020, although not all of these are open to UK investors.

How can I start investing in a social responsible way?

How you choose to invest depends on numerous factors, including your confidence with investing, your skill, experience, attitude to risk, the size of your investment portfolio and how long you intend to keep your money invested. There are several things to consider whatever option you take, each with their pluses and minuses.

If you are already an investor – you pension counts as an investment – identify the ESG and SRI characteristics of each investment you hold. If they don’t align with your values, investigate whether you can change your investments or funds, if your current provider can’t help another may be more accommodating.

There are a great number of ways to invest ethically, including a stocks and shares ISA, general investment account and through your pension. As with any investment the value can fluctuate over time so expect troughs as well as peaks. You can use a self-invested pension (SIPP) or personal pension to save for your future while investing in everyone else’s future by using an ESG and SRI specialist provider.

If you would like to speak to one of our experts to discuss the specifics of your requirements please do get in touch.

 

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