Adviser Points of View (17/04/2019) – Environmental Social Governance (ESG) is a growing global theme.

According to the (AIC) Association of Investment Companies: “More investors want their money to be invested in a sustainable way or in a way that makes a positive impact.”

Mark Mobius, joint manager of the Mobius Investment Trust highlights how ESG (as part of a wider portfolio) is a way to manage risk, he told the AIC: “First and foremost, taking ESG seriously means risk management. Companies that have good corporate governance and pay attention to the environment and social issues run less risk of becoming involved in scandals, having to pay fines or facing social problems.

“A recent study shows that companies implementing changes to environmental, social or governance standards following engagement from investors generated more than 7% of excess returns after 18 months. By taking ESG factors into account, investors can significantly reduce the risk profile of their investments, which over the long term not only translates into positive risk-adjusted returns, but also positively impacts all stakeholders,” Mobius adds.

What are E, S and G?

Environmental

Issues relating to the quality and functioning of the natural environment and natural systems, such as carbon emissions, environmental regulations, water stress and waste.

Social

Issues relating to the rights, well-being and interests of people and communities, such as labour management, health & safety and product safety.

Governance

Issues relating to the management and oversight of companies and other investee entities, such as board composition, ownership, shareholder rights and pay.

Ricky Chan, director and chartered financial planner (CFP) at IFS Wealth & Pensions says: “Ethical investing is still a niche but fast growing area. I’m a big fan of ESG funds and the positive contributions they have on society.

“They help to align clients’ desire to grow their investments with their values, so that profit isn’t gained at the expense of their or their children/grandchildren’s future. Investments are typically channelled into worthwhile companies/organisations that fit ESG funds’ ethical criteria or mandate.

“We have clients of all ages investing ethically, we tend to find an increasing appeal among younger/middle aged investors.

“They usually have either read something about ethical investing already or are open to learning more about it during our meetings. This enables them to experience and connect the tangible benefits of investing with the intangible concepts of investing and retirement planning/pensions. Consequently, I find that this helps them become more engaged with their overall financial planning.”

Full article link: https://www.adviserpointsofview.com/2019/04/what-do-advisers-think-of-esg/