Responsible investing

What is responsible investing?

Responsible investing is essentially the incorporation of additional analysis relating to environmental, social and governance factors to the asset selection process, along with ensuring that money invested is used to promote positive societal and global change. The additional factors are often called ESG.

Investing responsibly is not a new concept, with many asset managers having adopted screening processes or portfolios investing in ethical matters for some time, however major global initiatives have recognised the necessity of political and regulatory involvement to enact real change in the world, whether combatting the inevitability of climate change and its effects, eradicating poverty or promoting equality. Investor capital provides powerful leverage to engage with companies on ESG issues and enforce change. There is also mounting evidence that ignoring ESG matters in a changing world makes poor business sense; ESG analysis is now viewed as a pragmatic tool to mitigate risk in its own right. The establishment of key principles and initiatives outlining ESG criteria and stewardship of investor money has provided much needed clarity, increasing confidence and driving investment into ESG and thematic funds.

Why do investors want to invest more responsibly?

Investors' desire to invest in more socially friendly funds is increasing. In response to this, along with regulatory pressure, more companies are now integrating ESG criteria into their businesses to improve the way they operate. Evidence has shown that companies using ESG criteria are not only becoming more popular, but have exhibited resilience, making them better placed for long-term sustainable growth. Studies show that the younger generations care about ethical, sustainable and impact investing, as they become more aware of environmental issues, social inequality, and demands for corporate transparency, whilst also seeking to link their financial goals with their personal values and beliefs. Investing for good now to help create a more sustainable world for their own future, their children’s future and generations to come.

Investment involves risk

As with any other investment, it’s important to consider the investment risk involved even when incorporating ESG criteria. All investments have some level of risk. Whilst an investment opportunity may align with an investor's ESG goals, that doesn’t mean it’s right for them. It’s important they understand what their risk profile is and the risk level of investments they're considering to ensure they are appropriate, by reading the investment’s suite of literature before investing.