ENVIRONMENTAL, Social and Governance (ESG) investing is an umbrella term for investments that seek positive returns and long-term impact on society, environment and the performance of the business. By being more discerning in your investment picks, you can influence positive corporate behaviour and support companies who are behaving more responsibly.
In today’s world, investors are not only interested in the financial performance of their investments, but the impact their investments can have in promoting global issues such as climate action, renewable energy, new technology, waste management, recycling and healthcare innovation.
ESG or “sustainable” investing is not just about the feel-good factor of making a “good” choice, it is also underpinned by an expectation that companies which score highly on environmental, societal responsibility and corporate governance scales are likely to stay the course and perform well financially - there is compelling commercial rationale behind this too.
ESG investing has been snowballing in the last decade and, in 2020, the number of investment funds focused on ESG more than doubled. One demographic particularly drawn to ESG investing is millennials, but research from Barclays Wealth also reveals that having a family can be a notable turning point for one’s investment strategy, with attitude to risk and ESG investments both impacted by starting a family.
Since having children, 44 per cent of those surveyed across the UK admit that their risk appetite had been altered, with more than 7 in 10 parents choosing to invest in lower risk options from that point onwards. In addition, more than 55 per cent of parents admit they make a more conscious effort to invest sustainably for their family, compared to choices they make regarding investments intended for themselves.
Interestingly, mothers are more likely to consider sustainable investment options for their family (62 per cent), whereas fathers place less value on investing sustainably (50 per cent).
In contrast, investors who start young, perhaps unsurprisingly, may opt to have a little more fun with their investments when they have the benefit of youth on their side. When deciding on investments for their own personal portfolio, 2 in 5 of those surveyed for the Barclays research admit that savings made during the pandemic have encouraged them to take more risk with their personal investments, prioritising expected dividends rather than ESG credentials.
One explanation for this shift may be the way our children force us to think longer-term, with our minds focused on sustainability and our legacy for them. Future-proofing one’s portfolio is not just about diversifying across asset classes and geographies, but also ensuring your holdings are sustainable.
It must be said that ESG investing is not just for millennials or families, rather this is a strategy exercised across the investment world, with an ever-growing number of specialist funds focusing on these factors when selecting stocks for their portfolio.
It’s clear that ESG and sustainable investing is not just a passing trend, rather it is a philosophy and strategy that individuals are taking seriously - not only for their own portfolios but when thinking about the future of their families too.
ESG investing is really about supporting the companies striving to make the world a better place, a goal we can surely all get behind.
:: Cahir Gilheaney is a wealth manager with Barclays Wealth & Investment Management team in Belfast.
