Investing in the future
Over the past couple of years, two-thirds of investors have increased their sustainable investment, with 78% of them reporting that ethical investing is more important to them now than it was five years ago. Increasingly popular with the new generation of millennial investors, sustainable investment is here to stay, but what is it exactly?
Read on to discover what sustainable investing really means and how you can get involved.
What is sustainable investing?
Sustainable investing means investing in businesses that abide by ethical codes and deliver products or services for the good for the world instead of being purely profit driven.
Originally, sustainable investments or ESG funds (Environmental, Social and Governance) were considered as an admirable option, yet one that wasn’t favourable over non-sustainable options or ‘sin stocks’ However, in recent years, data has shown that ESG funds are outperforming other traditional funds providing better returns and faster growth.
To be classed as an ESG fund, a company should fit into one of the three pillars of ESG investing.
- Environmental – does the business tackle environmental problems or avoid contributing to them such as climate change, energy use, natural resource depletion, or the unethical treatment of animals?
- Social – Does the company maintain its ESG standards through its relationships with its internal and external stakeholders? A socially responsible company should also extend the same care and support to its workers. Ensuring they are paid a fair wage and the right health & safety practices are in place for their protection.
- Governance – A business that subscribes to ESG standards will also reflect this in their management processes. It should be clear and transparent in all areas including accounting and hiring processes – striving to achieve diversity and fairness in all aspects of the business.
Does sustainable investment offer better returns?
Over the past year it seems that ethical funds have failed to outpace non-ethical funds during 12 months of stock market volatility. However, this is most likely a blip as ESG funds have outperformed non-ethical funds in nearly every other timescale including five, ten, and fifteen-year periods.
According to Wealth Briefing, out of 26 comparable sectors, 19 ethical fund sectors produced positive average growth, compared with 19 sectors for non-ethical funds, based on past years’ data.
Investing in ESG funds
If you’re ready to include ESG funds in your investment portfolio our financial advisors at The Bateman Group are here to help. During your initial consultation we’ll discover your goals and aspirations for your investment portfolio and match you with the right investment opportunities.