Sustainable Investing

By Michelle Murphy

Companies and institutions have an impact on the world; sustainable investing sets out to avoid those that have an adverse effect and favour those that have a more positive one.

Over the years there has been a real drive in the world to think and live more sustainably, and society has been calling for change.  From recycling becoming mainstream practice to the reduction of plastic waste and the ongoing development of electric cars, the list goes on.

There have been calls for companies to act more responsibly in all areas of business practice, from waste management to fairer working conditions for employees and upholding human rights.

When weighing up whether a company is suitable for a sustainable investment portfolio, there are several different factors to consider.  These are usually grouped under three main headings: Environmental, Social and Governance – commonly referred to as “ESG” investing.

How do I Invest Sustainably?

You can invest in companies directly via shares.  However, this takes a lot of time, research and knowledge to pick the specific companies.

Another way to do this is to use an ESG investment fund.  The investors’ money is pooled together and a professional fund manager chooses how this money is invested.

ESG funds typically use one of two processes for selecting sustainable investments, or a combination of each.  These are a negative screening process where companies which are active in, or derive a certain amount of their turnover from, a particular activity are excluded.  Such areas can include defence firms (armaments), oil, mining, tobacco, alcohol, gambling and pornography.

A positive screening process involves identifying companies which are actively seeking to improve areas such as social problems, environmental issues, healthcare, quality of life, green energy and poverty reduction.

Some funds will use a mixed approach actively seeking companies which have a positive impact whilst excluding companies which are active in certain areas.

Does Sustainable Investing Mean Sacrificing Returns?

Not necessarily.

Historically, investors have been concerned that sustainable investing would limit the fund manager’s investment options and therefore compromise returns.  However, over recent years this has proved not to be the case.  Sustainable investments have performed as well as, if not better than, traditional investment funds.

Of course, there is no guarantee this will always be the case and there may be periods where traditional funds outperform sustainable investments.  However, evaluating ESG criteria is a way of enhancing traditional financial analysis, not replacing it and some now argue that by having a greater understanding of a company before investing, the fund manager should make a better investment decision.  The aim is not just to make sure that an investment is sustainable; as with any investment, ESG investing is aiming for positive financial returns.

How Beechwood Can Help?

We believe living more sustainably can be extended to your investments.  It is important to ensure your investments are aligned to your objectives and attitude to risk.   Our advisers can help you find the funds that choose to invest in companies and institutions that have a positive impact in the world, whilst still aiming to achieve positive investment returns.

Please remember that the value of units can fall as well as rise and are not guaranteed.  Past performance should not be considered a guide to future returns.  The sale of units in funds can, during adverse market conditions, be delayed or restricted in order to protect long term investors.

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