Environmental, Social and Governance (ESG) Investing is an area that has grown drastically over the last few years. With predictions of more than 50% of EU passive funds being ESG by 2025, and 2020 seeing more inflows into ESG funds than ever before, ESG is something that is certainly here to stay.
What led to this massive upturn in interest in ESG could be down to several factors.
Starting with the ‘bigger picture’, the commitments set out in the Paris Agreement in 2015 are well known, and set a target that can only be met by the world pulling together and recognising the damage that is being done by Global Warming and other activities.
Along with the global awareness increasing, the EU in particular has been introducing its own various different levels of legislation over recent years, with the Sustainable Finance Disclosure Regulation of March 2021 really cementing ESG as part of the overall advice process.
Whilst the UK of course falls outside of this legislation now, the Chancellor has announced the UK’s own commitments to the development of ESG with ‘their own’ Sustainability Disclosure Requirements being introduced, which is largely expected to at least match the EU’s position.
There are common questions around ESG, including whether an investor is sacrificing superior performance in order to ‘do that amount of good’ as well – or whether it comes at a premium cost.
Historically, the answer the those two questions may have been yes, but with the above legislation considered, and an overall increase in not only the investors’ awareness but also the fund managers and providers, this is no longer the case. ESG funds have been, and are expected to continue, performing well and at similar prices to ‘regular’ funds.
This shift, along with the introduction of the different levels of legislation, has greatly increased the interest in ESG.
Another consideration that needs to be given is how ESG can be applied to a given client’s individual needs. Whilst the Investment Association has moved to make certain terms clearer, everyone will have their own views and values, and this could prove difficult for advisers to incorporate into their advice.
Again, the answer to this one will be largely driven by the other points made. With greater interest will come a higher number of funds and products, and in tandem much greater amounts of data to use throughout the research process, which will hopefully make the decision making process even smoother.
Whilst this article merely scratches the surface of ESG, a closing thought with all of the above considered, is that it is not whether you can justify investing in ESG, it’s whether you can justify not doing so.
Should you wish to discuss any of the above, including any wider investment areas or tax planning, then please feel free to get in touch with one of Financial Consultants here at Westerby Investment Management Limited. We can be contacted by telephone on 0116 2470304, or by e-mail to enquiry@westerby.co.uk.
